An efficient market for risk (such as an insurance market) is most likely to exist:
A)when there is a level playing field, so that all participants have (approximately) the same wealth and the same degree of risk aversion.
B)when the potential sellers of insurance are risk-averse but the potential purchasers are not.
C)when there are significant differences between individuals' wealth levels and attitudes toward risk.
D)in the presence of private information.

Question

Quizplus · Accepted Answer

An efficient market for risk is more likely to exist when there are significant differences in individuals' wealth levels and attitudes toward risk, as this diversity allows for the pooling and sharing of risk, which is the essence of insurance markets.

An Efficient Market for Risk (Such as an Insurance Market)