Which of the Following Is Not an Advantage to an Insurance

question 159

Multiple Choice

Which of the following is not an advantage to an insurance company of insuring a large group of people for health insurance?

• A)The characteristics of a large group are likely to reflect those of the entire population.
• B)It is easier to accurately predict the number of claims for a group than for an individual.
• C)When all group members pay the premium, the problem of moral hazard is reduced.
• D)When all group members pay the premium, the problem of adverse selection is reduced.

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Definitions:

Expected Opportunity Loss

The anticipated loss in value resulting from foregoing the best course of action, often used in decision-making processes under uncertainty.

Perfect Information

A scenario in decision theory or economics where all participants have access to all relevant information.

Perfect Information

A condition in decision making where all parties have full and identical information relevant to the decision.

Expected Payoff

The anticipated return of an investment or decision under uncertainty, calculated as a weighted average of all possible outcomes.