In an Efficient Allocation of Risk

question 194

Multiple Choice

In an efficient allocation of risk:

• A)all risk is eliminated.
• B)those who are most willing to bear risk end up bearing it.
• C)all risk is diversified.
• D)all insurance premiums are equal to the expected value of the claims.

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Definitions:

Habitual Decision Making

The process of making choices that are consistent and routine, often without much thought, typically based on past behaviors and patterns.

Sunk-Cost Fallacy

Misguided reasoning that further investment is warranted on something simply because the resources already invested will otherwise be lost, without regard for future costs and benefits.

Limited Problem Solving

A decision-making process characterized by a consumer engaging in minimal search and deliberation, usually applied to familiar and low-stakes purchases.

Lower-Income

Describes individuals or families that earn significantly less money than the average for their society or community.