Question 1

Adverse selection in auto insurance might refer to

Accepted Answer

A)  an auto owner failing to maintain the car, increasing the likelihood of an accident. 
B)  an insured party driving faster than an uninsured party. 
C)  an applicant lying on their application form about their health history. 
D)  an insured driver using the car to conduct driving lessons for new learners. 
A)  an auto owner failing to maintain the car, increasing the likelihood of an accident. 
B)  an insured party driving faster than an uninsured party. 
C)  an applicant lying on their application form about their health history. 
D)  an insured driver using the car to conduct driving lessons for new learners.

Question 2

Suppose a decision maker has a utility function $U = \sqrt { I }$ and is faced with a lottery where there is a 30% chance of earning $30 and a 70% chance of earning $80. What is the expected utility of this lottery?

Accepted Answer

A)  7.6 
B)  7.9 
C)  8.2 
D)  8.5 
A)  7.6 
B)  7.9 
C)  8.2 
D)  8.5

Question 3

The expected value of a lottery is

Accepted Answer

A)  the average payoff you would get from the lottery if the lottery were repeated many times. 
B)  the sum of the probability-weighted squared deviations of the possible outcomes of the lottery. 
C)  a measure of risk preference. 
D)  the amount an individual would be willing to pay to enter a lottery. 
A)  the average payoff you would get from the lottery if the lottery were repeated many times. 
B)  the sum of the probability-weighted squared deviations of the possible outcomes of the lottery. 
C)  a measure of risk preference. 
D)  the amount an individual would be willing to pay to enter a lottery.

Adverse selection in auto insurance might refer to

Suppose a decision maker has a utility function $U = \sqrt { I }$ and is faced with a lottery where there is a 30% chance of earning $30 and a 70% chance of earning $80. What is the expected utility of this lottery?

The expected value of a lottery is

Analyzing Economic Problems

Demand and Supply Analysis

Consumer Preferences and the Concept of Utility

Consumer Choice

The Theory of Demand

Inputs and Production Functions

Costs and Cost Minimization

Cost Curves

Perfectly Competitive Markets

Competitive Markets: Applications

Monopoly and Monopsony

Capturing Surplus

Market Structure and Competition

Game Theory and Strategic Behavior

General Equilibrium Theory

Externalities and Public Goods

Filters

Exam 15: Risk and Information

Adverse selection in auto insurance might refer to

Suppose a decision maker has a utility function U=IU = \sqrt { I }U=I​ and is faced with a lottery where there is a 30% chance of earning $30 and a 70% chance of earning $80. What is the expected utility of this lottery?

The expected value of a lottery is

Analyzing Economic Problems

Demand and Supply Analysis

Consumer Preferences and the Concept of Utility

Consumer Choice

The Theory of Demand

Inputs and Production Functions

Costs and Cost Minimization

Cost Curves

Perfectly Competitive Markets

Competitive Markets: Applications

Monopoly and Monopsony

Capturing Surplus

Market Structure and Competition

Game Theory and Strategic Behavior

General Equilibrium Theory

Externalities and Public Goods

Filters

Suppose a decision maker has a utility function $U = \sqrt { I }$ and is faced with a lottery where there is a 30% chance of earning $30 and a 70% chance of earning $80. What is the expected utility of this lottery?