1. Insurance operates on the fact that most people are [Select ] ["risky", "rationality", "reasonble",...

1. Insurance operates on the fact that most people are [ Select ] ["risky", "rationality", "reasonble", "risk-averse"] meaning that they are most likely to pay[ Select ] ["more", "equally", "less"] in premiums than they would ever expect to get back in lifetime payouts for accidents.

2. Suppose that you had a chance to bet $10 on a coin flip, odds being 1:2 and the payout being 2:1. That is that your $10 bet would get you either $0 or $20 with even 50-50 odds. If you choose to bet you may be considered " [ Select ] ["irrational", "rational", "engaging and interesting"] " because your expected payout is equal to your present amount of money you could bet Or if you declined the offer one may consider that you are[ Select ]["engaging and interesting", "risky", "risk-averse"]

3. In the week's module there is an example that goes like this:

Saying the cost of gym membership at £500 a year sounds a lot, and may deter customers. But saying it costs just £1.37 a day ( less than a cup of coffee) sounds more attractive to consumers. At £1.37 they may be more tempted to purchase.

This is due to [ Select ] ["diminishing marginal utility", "subjective value", "subjective utility", "economic framing"].

Suppose that you could pay just the £1.37 each day and you chose to over buying a cup of coffee. This would imply that you valued[ Select ] ["health", "objectively", "coffee", "subjectively"] over [ Select ]["health", "coffee", "objectively", "subjectively"].

Suppose that you had just £5 to spend each day. Would you buy one or both? [ Select ] ["absolutely yes", "absolutely not", "Impossible to know given information"].

Solutions

Expert Solution

1. Insurance operates on the fact that most people are "risk averse" meaning they are more likely to pay "more" in premiums.

2:1 If you choose to bet you may be considered "irrational" because you expected payout in equal to your present amount of money you could bet or if you decline the offer one may consider you are "risk averse"

3.This is due to "Economic framing"

suppose that you could pay just 1.37 each day and you chose to over buying a cup of coffee. This would imply that you value "health" over "coffee"

Suppose that you had just 5 to spend each day. Would you buy one or both?

"Impossible to know given information"

Rahul Sunny answered 1 year ago

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