Which of the following statements is FALSE regarding the concept of "adverse selection"? Multiple Choice   Adverse selection describes a situation where an individual's demand for insurance is positively correlated with the individual's risk of loss.   Adverse selection occurs when someone increases their exposure to risk when insured. This can happen, for example, when a person takes more risks because someone else bears the cost of those risks.   The relationship between smoking status and mortality provides a good illustration for adverse selection, especially in the case in which a life insurance company did not vary its premiums according to smoking status of its customers.   To counter the effects of adverse selection, insurers may offer premiums that are proportional to a customer's risk.

Indicate whether the statement is true or false, and justify your answer.In the Rothschild–Stiglitz model, an individual who is offered a choice between full insurance and no insurance will always choose full insurance if they are risk-averse.

Indicate whether the statement is true or false, and justify your answer.Even though it is illegal for sickness funds to deny coverage to individuals, insurers still often engage in risk selection.