When People Who Buy Insurance Change Their Behaviour After the Purchase

question 23

Multiple Choice

When people who buy insurance change their behaviour after the purchase because they are protected from loss by the insurance, the insurance market is said to face the problem of

• A)moral hazard.
• B)adverse selection.
• C)asymmetric information.
• D)economic irrationality.

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Definitions:

Escape Behavior

An action taken to terminate an ongoing, unpleasant stimulus, effectively allowing an individual to avoid discomfort.

Drive

An internal motivational state created by physiological or psychological needs that drives an individual towards specific behaviors.

Pavlovian Conditioning

A learning process that occurs when two stimuli are repeatedly paired; a response that is at first elicited by the second stimulus is eventually elicited by the first stimulus alone.

Reward

A stimulus that increases the likelihood of a behavior being repeated.