Asked by Walter Enrique on Jun 29, 2024
Verified
Individuals differ in risk aversion because of:
A) adverse selection.
B) moral hazard.
C) differences in income or wealth.
D) differences in their insurance.
Risk Aversion
The preference to avoid uncertainty and risky situations, often influencing economic and financial decisions.
Adverse Selection
The case in which an individual knows more about the way things are than other people do. Adverse selection problems can lead to market problems: private information leads buyers to expect hidden problems in items offered for sale, leading to low prices and the best items being kept off the market.
Moral Hazard
The situation that can exist when an individual knows more about his or her own actions than other people do. This leads to a distortion of incentives to take care or to expend effort when someone else bears the costs of the lack of care or effort.
- Comprehending the impact of differences in income or wealth on risk aversion.
Verified Answer
Learning Objectives
- Comprehending the impact of differences in income or wealth on risk aversion.