Consider the Following Scenario When Answering the Following Questions

question 160

Multiple Choice

Consider the following scenario when answering the following questions:
Suppose that,in an experimental setting,100 students are asked to choose between Gamble A and Gamble B,where:
Gamble A: The student will receive $5 million with a 100 percent probability.
Gamble B: The student will receive $5 million with a 51 percent probability,$10 million with a 25 percent probability,and $0 million (nothing) with a 24 percent probability.
-What is the expected value of Gamble B?

• A) $5 million
• B) $5.01 million
• C) $5.05 million
• D) $10 million
• E) $0 million

Analyze scenarios demonstrating adverse selection and its consequences in real-life contexts.

Understand screening and signaling as solutions to overcome adverse selection in insurance.

Assess how insurance policies can be structured to accommodate both high and low-risk individuals.

Understand the concepts of signaling and screening mechanisms in different contexts.

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Definitions:

Disaffirm Purchases

Refers to the legal act of voiding or canceling a purchase or contract, typically in contexts where one party lacks the capacity or legal right to make the purchase initially.

Game Currency

Virtual money used within video games to purchase virtual goods or advantages.

Terms Of Service

The legal agreements between a service provider and a user that outline the rules and guidelines for using the service.

Disaffirm

The legal act of renouncing or voiding a contract or agreement, especially by a person who was not of legal age or capacity at the time of entering the agreement.