You are the Chief Financial Officer (CFO) of Big Time Grocery. It is your job to make all financial decisions for your company. In this role-play you will make decisions about purchasing insurance for your company. To make things easy, we will focus only on the decision to buy or not buy insurance so we will make the price of insurance very low. Since we do not have money in this course, we will use your points from this experiment as our currency. In any of the cases we define below, the price of insurance is 1 point. Thus, your decision in this experiment is to buy insurance or not at a price of 1 point. Of course, insurance is only valuable if you have something to insure. We will focus on a very common type of insurance - Workers Compensation Insurance. With Workers Compensation Insurance a worker gets a wage replacement if they get hurt on the job. The key point here is that some workplaces are prone to injury and some workplaces are not. To model this situation, we will assign half of the class to be the CFO of a firm which is Dangerous and half of the class will be assigned as having a Safe firm. Dangerous firms are predisposed to having workers have an accident on the job, but safe firms never have workers who have an accident on the job. Your firm will be randomly assigned a type - either Dangerous(D) or Safe(S). For each decision you make below, you will either be randomly assigned as dangerous or safe. The determination of who is dangerous and who is safe is completely random (50% chance of each type) and is independent across the two decisions. If you are the CFO of a dangerous firm, you face a 50% chance of having an Accident. If you have an accident, you suffer a loss of 3 points in this assignment. Safe firms have a 0% chance of having an accident. All determinations of Dangerous/safe and having an accident or not will be determined after, but independent of, your decisions made in this experiment. This means that you must make your decisions and then when grades are revealed you will know some information about your type and if you had an accident. Insurance Market: Anyone can purchase insurance for 1 point. If you purchase insurance and have an accident you will be compensated 3 points. Notice that only dangerous firms have a chance at an accident; If you are safe firm, there is no benefit from insurance - insurance only pays out if you have an accident and safe firms cannot have an accident. You must pay the 1 point to purchase insurance even if you do not have an accident.

Your Decision(s) You will make a series of decisions in this experiment. Our main objective is to understand how a manager may go about making financial decisions and to highlight how asymmetric information in the decision-making process may result in adverse selection and/or moral hazard. Decision 1. In this decision we will synthesize a market where you do not know your type. Your firm can either be dangerous or safe with a 50% chance of each. You must choose to either purchase insurance or not without knowing if your firm is safe or dangerous. You post your decision in the Discussion Board for this experiment. This should be labeled Decision 1: Decision 2. Here we will simulate the market if you did know your type - dangerous or safe.Since determination of your type is done after you make your decisions in this game (but independent of your choices), you must make a choice for each type that your firm might be. Your firm is either dangerous or safe but you must make a choice in each case and only the choice which is your true type (which is randomly assigned as outlined above) is enforced. Post your decision in Discussion Board for the experiment with one decision for each type that you might be. This should be labeled Decision 2: In summary, your discussion thread you create should look similar to the one below. Decision 1: XXX Decision 2: if dangerous YYY If safe ZZZ Where XXX, YYY, and ZZZ are your decisions to either buy or not buy insurance.