Identify Whether Each of the Following Situations Is a Case

question 32

Essay

Identify whether each of the following situations is a case of adverse selection or moral hazard. Explain.
a.Jasper knows, but the car rental company does not know when he is trying to rent a car during a blizzard in Winnipeg, that Jasper grew up in a tropical climate and has no idea how to drive in cold weather and snowy conditions.
b.Joan has received a loan from the bank to finance the purchase of more inventory for her quilt shop, but she intends to use the money (without telling the bank) to go on a safari in Africa.
c.Some companies sell annuities, which are policies that make periodic payments as long as the purchaser lives. Jane is trying to buy an annuity. Jane knows, but the annuity issuers do not know, that people in Jane's family routinely live to age 100.

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Definitions:

Selection Effect

A bias introduced into research results by the way subjects are selected or self-select into a study, potentially skewing outcomes.

Peer Influence

The effect on an individual's behaviors, attitudes, or beliefs resulting from interaction with their peers.

Same-sex Playgroups

Social groups formed by children that consist exclusively of members of the same sex, often reflecting early gender preference in socialization.

Relational Aggression

A type of aggression that involves harm to relationships or social status, often manifested through gossip, exclusion, or manipulation.