Risk pooling can cut the variance of losses while keeping the mean intact. Hence, according to the mean-preserving spread proposition, agents will be _____________ with risk pooling than without it.
A) worse off
B) better off
C) no better or worse off

Question

Quizplus · Accepted Answer

Risk pooling reduces the variability of potential losses, without affecting the expected loss (mean). Therefore, the mean-preserving spread proposition suggests that agents will be better off with risk pooling than without it.

Risk Pooling Can Cut the Variance of Losses While Keeping