How can a buyer of car insurance help in reducing the effects of ...

[D2AR0N]

How can a buyer of car insurance help in reducing the effects of adverse selection?
 
  What will be an ideal response?

Question 2

A game is called a simultaneous move game if ________.
 
  A) players choose their actions at the same time
  B) one player chooses her action after the other player makes a move
  C) players choose mixed strategies to play the game
  D) players choose their dominant strategies to play the game

[smrtceo]

Answer to Question 1

Adverse selection occurs in the insurance market due to asymmetric information. A buyer of car insurance knows about his/her ability to drive a car and hence the likelihood of having an accident, while the insurer does not. A buyer can reduce this information asymmetry by signaling the insurer about his/her abilities as a driver, for example, by passing driving competency tests.

Answer to Question 2

A

[D2AR0N]

Correct answers!

[smrtceo]

Great! Please up vote