Chapter 4: Review and Practice Questions #

1. What is risk? How is it philosophically different from uncertainty?

3. Explain the difference between moral hazard and adverse selection. Can one exist without the other?

4.What externalities are caused in the insurance market by moral hazard and adverse selection? How are they overcome in practice?

5. Do risk-averse individuals outnumber risk-seeking ones? Give an intuitive explanation.

6. Provide examples that appear to violate expected utility theory and risk aversion.