An insurance company that writes automobile policies tries to separate safe drivers from risky drivers by offering policies that feature different deductibles and different premiums.This practice is best described as an example of
A) screening.
B) behavioral economics.
C) the Condorcet Paradox.
D) signaling.

Question

Quizplus · Accepted Answer

This is an example of screening because the insurance company is attempting to distinguish between safe and risky drivers by offering different policies with varying deductibles and premiums. Screening is a process whereby a firm tries to identify the different characteristics of potential customers in order to offer them different goods or services. In this case, the insurance company is using information about a driver's riskiness to offer them an appropriate policy.

An Insurance Company That Writes Automobile Policies Tries to Separate