Mary and Bob Are Trying to Decide How Much Auto

question 10

Multiple Choice

Mary and Bob are trying to decide how much auto insurance to buy. They share the same expectations of an accident, with the same dollar loss. They also have the same income levels. However, Mary would rather buy very little insurance, while Bob would rather buy much more insurance. This suggests that:

• A) Bob is more risk-averse than Mary.
• B) Mary is more risk-averse than Bob.
• C) Bob is risk-averse and Mary is risk-loving.
• D) Mary is risk-averse and Bob is risk-loving.

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Definitions:

Subrogation

A legal principle allowing one party (usually an insurance company) to step into the shoes of another and claim their rights in order to recover damages from a third party.

Contribution

A payment or effort made towards a collective goal or to support a cause.

Insurable Interest

A legitimate stake or investment in the life, property, or well-being of the subject matter of an insurance policy, such that the policyholder would suffer financial loss if the insured event occurs.