Matty and Rudy Are the Same Age, Live in the Same

Multiple Choice

Matty and Rudy are the same age, live in the same town, and hold similar jobs a similar distance from their respective homes. They are so similar, in fact, that they are both offered the same auto insurance options. However, Matty has never been a particularly good driver, so he buys high-coverage auto insurance. Rudy, on the other hand, takes pride in being an excellent driver and thus only carries the minimum amount of insurance required. This example illustrates the potential for:

A) risk pooling.
B) risk aversion.
C) adverse selection.
D) diversification.