Insurance Companies Try to Mitigate the Problem of Adverse Selection

question 112

Multiple Choice

Insurance companies try to mitigate the problem of adverse selection by:

• A)asking potential customers questions to gain as much information as possible about the person's risk characteristics.
• B)charging a higher premium to groups with characteristics that correlate with risky behavior.
• C)charging a higher price to all individuals to counter the lack of information.
• D)All of these are true.

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Definitions:

Significance Level

The chance of wrongly rejecting the true null hypothesis during a statistical examination.

Confidence Interval

A statistical range, with a given probability, that is likely to contain the true value of an unknown population parameter.

Mean Weekly Salary

The average amount of money earned by workers in a week, calculated by summing all weekly salaries and dividing by the number of salaries.

Female Employees

Women who are employed by an organization, company, or business.