Apply the Definition of Risk Provided in the Textbook to an Individual's

question 58

Essay

Apply the definition of risk provided in the textbook to an individual's decision to purchase a car insurance policy. Suppose that the individual has two possibilities: no accident ($0 gain/loss) and accident (-$30,000 loss). If the probability of an accident is lower than the probability of an accident occurring (say the probability of an accident is 10%), then why do people buy car insurance? How is this related to the concept of value at risk and the time horizon of investment decisions?

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Definitions:

Attitudinal Learning Technique

Educational methods focused on changing or influencing a person’s attitude or perception towards a subject.

Antibacterial Agent

Substances that destroy or inhibit the growth of bacteria, commonly used in medications and cleaning products.

Changes Beliefs

The process of modifying personal or collective perceptions and convictions, often influenced by new information, experiences, or persuasive messages.

Ideals-motivated

refers to actions or decisions driven by a person's core values and principles, rather than by practical considerations.