Suppose a patent applicant approaches an insurance company and seeks to purchase an insurance policy that her patent will not net $1m in the next three years.The insurance company
A) will sell her an insurance policy because the proposal entails uncertainty not risk.
B) will sell her an insurance policy because the proposal entails risk not uncertainty.
C) will not sell her an insurance policy because the proposal entails uncertainty not risk.
D) will not sell her an insurance policy because the proposal entails risk not uncertainty.

Question

Quizplus · Accepted Answer

Uncertainty refers to situations where the probability of potential outcomes is not known, while risk refers to situations where the probability of potential outcomes is known. In this case, it is impossible to predict whether the patent will net $1m in the next three years, which makes it an uncertain situation. Insurance companies typically do not provide insurance against uncertainty, only risks, and hence the insurance company will not sell her an insurance policy.

Suppose a Patent Applicant Approaches an Insurance Company and Seeks