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- Suppose your classmate Roby is faced with the following decision: they either receive $7,000 with certainty, or a 50-50 chance of receiving $3,500 or $10,500. Suppose Roby prefers the certain 57,000. True or False: Based on their preferences, Roby is not a risk averse person. O True O False Suppose there is a disease certain to impact exactly 5% of a population and that each member of the population is equally likely become infected, Treatment for individuals who are infected costs $32,000. Assume in this scenario that the necessary treatment for the disease is the only healthcare cost faced by this population. to pay the expected cost of healthcace with The expected cost of healthcare is If members of the population certainty, rather than take on the 5% risk of having to pay the full cost of the treatment, they are risk averseSuppose that the buyers do not know the quality of any particular bicycle for sale, but the sellers do knowthe quality of the bike they sell. The price at which a bike is traded is determined by demand and supply.Each buyer wants at most one bicycle.(ii) Assuming that each buyer purchases a bike only if its expected quality is higher than the price,and each seller is willing to sell their bike only if the price exceeds their valuation, what is theequilibrium outcome in this market?Consider a risk-neutral agent who maximizes expected utility of wealth facing a lottery with a "bad" (wealth remains the same) and a "good" (wealth increases by a small amount) outcome (both with non-zero probabilities). For this agent, O the certainty equivalent will be zero, but the risk premium will be greater than zero. O the certainty equivalent will be greater than zero, but the risk premium will be zero. O the certainty equivalent will be greater than zero, but the risk premium will be less than zero. O the certainty equivalent will be less than zero, but the risk premium will be greater than zero. O the certainty equivalent and the risk premium will both be zero. there is not enough information to make statements about the certainty equivalent and the risk premium.
- True or False: Short-term disability insurance usually requires a short waiting period before it pays benefits. O True O FalseMf. Mean variance utility defines risk using certainty equivalent wealth. The lower the certainty equivalent wealth, the lower the mean variance utility. uestion Select one: O True O False Under constant relative risk aversion, the lower the certainty equivalent wealth is than the average wealth of a lottery the riskier the lottery. Select one: O True O False Given a normally distributed risky asset and a risk free asset, a person with a lower CRRA risk aversion coefficient will put less in the risk free asset than a person with a higher CRRA risk aversion. Select one: O True O False Greater risk aversion means a plot of utility vs. wealth would look less curved. Select one: O True O False The greater the wealth, the less the utility of the next dollar of wealth. Select one: O True O False People don't like risk because it means they get poorer when they're poorer and richer when they're rich. In fact, a financial security…1. A woman with current wealth X has the opportunity to bet an amount on the o ccurrence of an event that she knows will occur with probability P. If she wager s W, she will received 2W, if the event occur and if it does not. Assume that t he Bernoulli utility function takes the form u(x) = -e-TX with r> 0. How much should she wager? Does her utility function exhibit CARA, DARA, IARA?
- 12. True or False? Medicaid is a U.S. federal- and state- government-sponsored insurance program that provides insurance to people under age 65 whose incomes fall below a certain threshold (level). O True O False[Adverse Selection] Each of the two players receives an envelope, in which there is anamount of money that is equally distributed from $0, $1, $2, ..., $100. The amounts in twoenvelopes are independent. After receiving the envelope, each individual can check exactlyhow much money is put in his/her own envelope. Then each player has the option to exchangehis/her envelope for the other individual's prize. The decisions are made simultaneously. Ifboth individuals agree to exchange, then the envelopes are exchanged; otherwise, if at leastone player chooses not to exchange, each individual keeps his/her own envelope and receivesits attached sum of money.a. Model this game as a static Bayesian game (write the normal formrepresentation) and find the Bayesian Nash equilibrium.b. Consider a new game where the probability distribution of money in eachenvelope is changed. The amount is equal to $100 with probability 90%, and is equalto each number in $0, $1, $2, ... ,$99 with probability 0.1%.…A9 Describe an example of adverse selection that we may run into in the real world. How does adverse selection impact the policy holders for this specific type of insurance for: High risk participants? Low risk participants? What is one government regulation that has been enacted in the last 20 years that helps either high risk or low risk policy holders in the United States
- Health care expenditures coming directly out of consumers' pockets, primarily in the form of deductibles and copayments, account for what care spending? O 18 percent 35 percent 44 percent O 21 percentJin's Utility Function Wealth Utility (Dollars) 60,000 4,000 61,000 4,110 62,000 4,209 63,000 4,288 Refer to Table 27-1. If Jin's current wealth is $61,000, then O his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000. Jin is not risk averse. O his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000. Jin is not risk averse. O his gain in utility from gaining $1,000 is greater than his loss in utility from losing $1,000. Jin is risk averse. his gain in utility from gaining $1,000 is less than his loss in utility from losing $1,000. Jin is risk averse.Why is there asymmetric information in the labor market? What signals can an employer look for that might indicate file traits they are seeking in a new employee?