When people are risk averse, the price they are willing to pay for insurance _____ the actuarially fair price.
A)must be lower than
B)may be higher than
C)must be equal to
D)may be equal to or lower than but not higher than

Question

Quizplus · Accepted Answer

When people are risk averse, they are willing to pay more than the actuarially fair price for insurance in order to avoid the possibility of a large loss. Therefore, the price they are willing to pay for insurance may be higher than the actuarially fair price.

When People Are Risk Averse, the Price They Are Willing