Belangrijke termen

Question 1

Risk aversion

Answer 1

In economics and finance, risk aversion is the behavior of humans (especially consumers and investors), who, when exposed to uncertainty, attempt to lower that uncertainty. It is the hesitation of a person to agree to a situation with an unknown payoff rather than another situation with a more predictable payoff but possibly lower expected payoff. For example, a risk-averse investor might choose to put their money into a bank account with a low but guaranteed interest rate, rather than into a stock that may have high expected returns, but also involves a chance of losing value.

Question 2

Utility function

Answer 2

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Question 3

Risk pooling

Answer 3

the practice of sharing all risks among a group of insurance companies

Question 4

Moral hazard

Answer 4

The tendency for insurance against loss to reduce incentives to prevent or minimize the cost of loss
Natural hazards: lightening strikes
Moral Hazard: carelessness and fraud that can lead to losses and are the result of decisions by humans

Extent of moral hazard depends on how sensitive demand is to price and the amount of price distortion caused by insurance. Insurers cannot alter price sensitivity, but do have ways to reduce price distortion due to insurance

Question 5

Moral hazard holds at 3 conditions

Answer 5

1. the cost of a risky or wasteful action to an individual is reduced, usually as a consequence of insurance
2. Asymmetric information prevents an insurer from adequately pricing the action
3. That individual responds to the price distortion by changing his behaviour - either by taking more risks or demanding more covered goods and services

Question 6

Limit moral hazard

Answer 6

1. Coinsurance
2. Copayments
3. Deductibles
4. Monitoring

Question 7

Coinsurance

Answer 7

Insurance provision in which enrollees pay a percentage of each medical bill and the insurer covers the remaining portion

Question 8

Copayment

Answer 8

Insurance provision in which enrollees pay only a fixed amount, called a copay

Question 9

Reverse causation

Answer 9

the impact poor health has on one’s ability to work

healthy individuals are also more productive and earn higher wages

Question 10

Dupas utility function

Answer 10

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