Living Economics

Grade A Material
Allan Landstreet
In the absence of perfect information, insurers charge premiums according to classes of risks rather than individual risks.

When I was a child, I couldn't wait to get a car. I didn't really know much about bills and car insurance, but I soon would. Ever since I have started paying for my car insurance, I have hated it. Insurance for a single young male under twenty-three years old, with a sports car is rather expensive. In the beginning, Shelter insurance charged me $600 quarterly. Fortunately, there were various premium discounts:

The one thing that I can't change is the fact that I am a male. Males have the highest percentage of wrecks on the road today. Most men like to go fast and disregard traffic laws. So they are charged a higher premium for being young and unmarried. It might seem to be unfair to those men who are careful drivers. But this so-called statistical discrimination based on gender and age as proxy variables allows the company to make an educated guess on which customers should pay higher premium in the absence of perfect information.

And if I ever get into an accident, my insurance premium will surely be adjusted upwards accordingly.

Note:
  1. Allan Landstreet is an undergraduate at the University of Memphis.
  2. Allan Landstreet is an undergraduate at the University of Memphis.
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