16: Information, Risk, and Insurance
- Page ID
- 181248
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\(\newcommand{\avec}{\mathbf a}\) \(\newcommand{\bvec}{\mathbf b}\) \(\newcommand{\cvec}{\mathbf c}\) \(\newcommand{\dvec}{\mathbf d}\) \(\newcommand{\dtil}{\widetilde{\mathbf d}}\) \(\newcommand{\evec}{\mathbf e}\) \(\newcommand{\fvec}{\mathbf f}\) \(\newcommand{\nvec}{\mathbf n}\) \(\newcommand{\pvec}{\mathbf p}\) \(\newcommand{\qvec}{\mathbf q}\) \(\newcommand{\svec}{\mathbf s}\) \(\newcommand{\tvec}{\mathbf t}\) \(\newcommand{\uvec}{\mathbf u}\) \(\newcommand{\vvec}{\mathbf v}\) \(\newcommand{\wvec}{\mathbf w}\) \(\newcommand{\xvec}{\mathbf x}\) \(\newcommand{\yvec}{\mathbf y}\) \(\newcommand{\zvec}{\mathbf z}\) \(\newcommand{\rvec}{\mathbf r}\) \(\newcommand{\mvec}{\mathbf m}\) \(\newcommand{\zerovec}{\mathbf 0}\) \(\newcommand{\onevec}{\mathbf 1}\) \(\newcommand{\real}{\mathbb R}\) \(\newcommand{\twovec}[2]{\left[\begin{array}{r}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\ctwovec}[2]{\left[\begin{array}{c}#1 \\ #2 \end{array}\right]}\) \(\newcommand{\threevec}[3]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\cthreevec}[3]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \end{array}\right]}\) \(\newcommand{\fourvec}[4]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\cfourvec}[4]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \end{array}\right]}\) \(\newcommand{\fivevec}[5]{\left[\begin{array}{r}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\cfivevec}[5]{\left[\begin{array}{c}#1 \\ #2 \\ #3 \\ #4 \\ #5 \\ \end{array}\right]}\) \(\newcommand{\mattwo}[4]{\left[\begin{array}{rr}#1 \amp #2 \\ #3 \amp #4 \\ \end{array}\right]}\) \(\newcommand{\laspan}[1]{\text{Span}\{#1\}}\) \(\newcommand{\bcal}{\cal B}\) \(\newcommand{\ccal}{\cal C}\) \(\newcommand{\scal}{\cal S}\) \(\newcommand{\wcal}{\cal W}\) \(\newcommand{\ecal}{\cal E}\) \(\newcommand{\coords}[2]{\left\{#1\right\}_{#2}}\) \(\newcommand{\gray}[1]{\color{gray}{#1}}\) \(\newcommand{\lgray}[1]{\color{lightgray}{#1}}\) \(\newcommand{\rank}{\operatorname{rank}}\) \(\newcommand{\row}{\text{Row}}\) \(\newcommand{\col}{\text{Col}}\) \(\renewcommand{\row}{\text{Row}}\) \(\newcommand{\nul}{\text{Nul}}\) \(\newcommand{\var}{\text{Var}}\) \(\newcommand{\corr}{\text{corr}}\) \(\newcommand{\len}[1]{\left|#1\right|}\) \(\newcommand{\bbar}{\overline{\bvec}}\) \(\newcommand{\bhat}{\widehat{\bvec}}\) \(\newcommand{\bperp}{\bvec^\perp}\) \(\newcommand{\xhat}{\widehat{\xvec}}\) \(\newcommand{\vhat}{\widehat{\vvec}}\) \(\newcommand{\uhat}{\widehat{\uvec}}\) \(\newcommand{\what}{\widehat{\wvec}}\) \(\newcommand{\Sighat}{\widehat{\Sigma}}\) \(\newcommand{\lt}{<}\) \(\newcommand{\gt}{>}\) \(\newcommand{\amp}{&}\) \(\definecolor{fillinmathshade}{gray}{0.9}\)- 16.0: Introduction
- This page discusses the Patient Protection and Affordable Care Act (Obamacare), noting its controversial reception despite majority approval by 2022. It highlights ongoing opposition rooted in misconceptions and fears related to healthcare and government spending. The chapter addresses themes of imperfect and asymmetric information, explaining how these issues hinder transactions and access to insurance, while emphasizing the need for mechanisms to bridge information gaps in the market.
- 16.1: The Problem of Imperfect Information and Asymmetric Information
- This page discusses imperfect and asymmetric information in economic transactions, using examples like gemstones and used cars to illustrate buyer risks from sellers withholding information. It highlights the FTC's role in regulating advertising claims to protect consumers from misleading information and emphasizes the importance of buyer awareness.
- 16.2: Insurance and Imperfect Information
- This page examines the role of insurance as a financial safeguard against losses, addressing challenges like moral hazard and adverse selection. It notes the U.S. health insurance system's inefficiencies and the Affordable Care Act's (ACA) role in reducing the uninsured rate and enhancing coverage and competition. Significant features of the ACA include the prohibition of denying coverage for pre-existing conditions and funding mechanisms.
- 16.3: Key Terms
- This page defines essential concepts in insurance and financial agreements, such as adverse selection, asymmetric information, coinsurance, collateral, copayment, cosigner, deductible, fee-for-service, HMO, imperfect information, moral hazard, occupational license, premium, risk group, service contract, and warranty. Each term highlights critical elements of insurance operations and financial transactions.
- 16.4: Key Concepts and Summary
- This page explores the impact of imperfect and asymmetric information in economic transactions, particularly regarding buyers' fears of low-quality products ("lemons"). It examines market solutions like guarantees, reputation, and screening processes, as well as insurance as a tool for risk sharing that addresses moral hazard, deductibles, and copayments.
- 16.5: Self-Check Questions
- This page discusses three key questions regarding imperfect information: in purchasing scenarios, asymmetric information in the labor market, and health outcome measurement challenges. It encourages users to evaluate expected imperfect information in purchases, examine reasons for asymmetric information in employee traits, and consider the difficulties in measuring health outcomes.
- 16.6: Review Questions
- This page discusses economic concepts including imperfect information, used car markets, and ways for sellers to build buyer confidence. It addresses insurance topics like premiums, benefits, and challenges such as moral hazard and adverse selection. Additionally, it examines healthcare systems and the differences between fee-for-service and health maintenance organizations, along with methods for measuring health outcomes.
- 16.7: Critical Thinking Questions
- This page discusses information asymmetry and decision-making in various contexts, including hiring teachers to address imperfect information, the effects of mandatory exams on emerald sales, moral hazard in sports safety regulations, and insurance strategies with different copays and premiums. It examines how improved information and risk considerations influence market behavior and decisions in hiring, selling, and insurance.
- 16.8: Problems
- This page covers two economics exercises concerning supply and demand, and a life insurance scenario. The first exercise involves creating a diagram to show how better information affects equilibrium price and quantity. The second exercise calculates fair life insurance premiums based on varying mortality rates related to cancer history, examining the implications for an insurance company if it applies a uniform premium.