Question 1

The following is an example of adverse selection​

Accepted Answer

A) ​A majority of those applying for well paid jobs are well qualified 
B) More reckless drivers opt for cars with fewer safety devices 
C) Individuals living in less secure neighborhoods want to buy less insurance 
D) ​Individuals with a strong family history of heart diseases opt to buy more insurance

Question 2

​For a screen to be successful,

Accepted Answer

A) ​High risk individuals must not be able to pose as low risk individuals 
B) It must not be profitable for high risk individuals to pose as low risk individuals 
C) High risk individuals should be able to pose as low risk individuals 
D) ​None of the above

Question 3

​A firm hiring only MBAs,regardless of the self-professed skill set is an example of

Accepted Answer

A) ​Screening mechanism 
B) Signaling mechanism 
C) Way to waste money 
D) ​None of the above

Question 4

​An individual who is a risk lover

Accepted Answer

A) ​values a lottery at more than its expected value 
B) values a lottery at exactly its expected value 
C) values a lottery at less than its expected value 
D) ​tends to play lots of lotteries

Question 5

​Ideally,insurance companies would like to charge

Accepted Answer

A) ​High premium to low risk clients 
B) Low premium to high risk clients 
C) The same premium to all clients 
D) ​High premium to high risk and low premium to low risk clients

Exam 17: The Problem of Adverse Selection

The following is an example of adverse selection​

​For a screen to be successful,

​A firm hiring only MBAs,regardless of the self-professed skill set is an example of

​An individual who is a risk lover

​Ideally,insurance companies would like to charge

The following is an example of adverse selection

For a screen to be successful,

A firm hiring only MBAs,regardless of the self-professed skill set is an example of

An individual who is a risk lover

Ideally,insurance companies would like to charge