Using Gambling to Teach Insurance Principles
AbstractA basic understanding of insurance principles is useful for making personal finance decisions and for considering public policy issues. Yet, insurance concepts tend to be less intuitive, more difficult for students to grasp, than other concepts. This paper shows how fundamental insurance principles can be taught by relating them to the principles underlying gambling, the game of roulette in particular. This approach has been used successfully with college freshmen taking macroeconomics at the University of Nevada, Reno. After hearing a lecture given using this approach, students tend to come alive with questions, can understand why they might not want to buy an extended warrantee the next time it is offered, can understand why investing in the stock market is usually different than gambling, and can even start to see the subtleties in public policy issues involving insurance.
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Bibliographic InfoPaper provided by University of Nevada, Reno, Department of Economics & University of Nevada, Reno , Department of Resource Economics in its series Working Papers with number 10-006.
Length: 21 pages
Date of creation: Oct 2010
Date of revision:
Agnosticism; Gambling; Insurance; Teaching; Expected value; Risk averse; Risk seeking; Moral hazard; Adverse selection; Extended warrantee;
Find related papers by JEL classification:
- C44 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Operations Research; Statistical Decision Theory
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
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- Chen, Zhiqi & Ross, Thomas W., 1994. "Why are extended warranties so expensive?," Economics Letters, Elsevier, vol. 45(2), pages 253-257, June.
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