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When the size of the potential loss is small, most people will insure because insurance costs less than the expected loss self-insure because they can afford it and the expected loss

When the size of the potential loss is small, most people will:  

A. insure because insurance costs less than the expected loss

B. self-insure because they can afford it and the expected loss is less than the insurance premium

C. self-insure because the expected loss can not be calculated

D. self-insure because insurance companies do not like to insure for small losses

12.Where important decisions involving people we do not know well are involved:  

A. even weak signals of ability are often decisive

B. weak signals of ability are never decisive

C. we are more likely to be risk neutral

D. we are less likely to self-insure

13.A person's incentive to spend additional money on conspicuous consumption goods will be ___________ to the amount and reliability of independent information that people have about his abilities.  

A. unrelated

B. positively related

C. inversely related

D. equal

14.Conspicuous consumption as an ability signal:  

A. completely different from a prisoner's dilemma

B. is more effective if the positional goods nature of consumption causes everyone to consume elaborately

C. will likely continue even if it is wasteful for all involved

D. characterized by lower levels of consumption

15.Persons whose utility functions are concave with respect to wealth are said to be:  

A. risk-seekers

B. risk-neutral

C. risk-averse

D. fair gamblers

16.Which of the following gambles should be consider more attractive?  

A. If heads, you win €200; if tails, you lose €198

B. If heads, you win €5; if tails, you lose €10

C. If heads, you win €6; if tails, you lose €4

D. If heads, you win €9; if tails, you lose €6

17.A gamble in which you win D euros if the coin comes up heads, but lose D euros if the coin comes up tails has an expected value of:  

A. 1/2D

B. -1/2D

C. D

D. 0

18.The utility function of wealth for a risk-seeker has:  

A. an increasing slope as wealth rises

B. a decreasing slope as wealth rises

C. a constant slope as wealth rises

D. a slope that could be any of the above since utility of wealth is unrelated to risk-seeking

19.A risk-neutral consumer:  

A. will always refuse a fair gamble

B. will always accept a fair gamble

C. is indifferent between accepting and refusing a fair gamble

D. avoids all risks

20.Your utility function is given by U = M2. You are:  

A. risk averse

B. risk neutral

C. a risk seeker

D. It is impossible to say

Feb 11 2020 View more View Less

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