• Risk and Insurance
- insurance can offset risks posed by timing problems in the market
- insurance is efficient when premiums equal the expected payout, but there is uncertainty on both ends in this area
probability of occurrence of an event can be hard to measure, especially with rare events
This causes inefficient pricing due to “risk premiums”
Accumulated risk increases prices even more (this is the chance that the insurer will occur multiple payouts related to the same event)