Which of the Following Actions Best Illustrates Adverse Selection

question 76

Multiple Choice

Which of the following actions best illustrates adverse selection?

• A)A person adds risky stock to his portfolio.
• B)A person who has narrowly avoided many accidents applies for automobile insurance.
• C)A person is unwilling to buy a stock when she believes its price has an equal chance of rising or falling $10.
• D)A person purchases homeowners insurance and then checks his smoke detector batteries less frequently.

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Definitions:

Intentional Action

Behavior performed with a goal in mind, involving cognitive processes such as planning and decision-making.

Disequilibrium

In the context of developmental psychology, this term refers to a state of cognitive imbalance that prompts learning and adjustment, as theorized by Jean Piaget.

Cognitive Growth

The expansion of mental abilities and processing capacities, often through learning, experience, and maturity.

Synaptic Growth

The development and strengthening of synapses, which are the connections between neurons in the brain.