Insurance Companies Try to Mitigate the Problem of Adverse Selection

question 102

Multiple Choice

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

• A)asking potential customers a seemingly endless list of questions to gain as much information as they can about the person's risk aversion.
• B)charging a higher premium to groups with similar ages or behaviors that correlate with risky behavior.
• C)charge a higher price to all individuals to cover the lack of information.
• D)All of these statements are true.

---

Definitions:

Wavenumber

Wavenumber is a unit of measure used in spectroscopy to represent the number of wave cycles per unit of distance, commonly inversely proportional to wavelength.

Carbon-Carbon Triple Bond

A chemical bond between two carbon atoms involving six bonding electrons instead of the usual two, making it stronger and shorter than single and double bonds.

Binomial Populations

Populations characterized by two possible outcomes for each observation, such as success or failure, often modelled using the binomial distribution.

True Proportion

A statistical term that refers to the actual fraction of a population that possesses a specific attribute or outcome.