It is better to pool risks because you can:
A)increase your income.
B)reduce your expected income but increase its standard deviation.
C)reduce the variability of expected income.
D)increase your expected income.

Question

Quizplus · Accepted Answer

When risks are pooled, the variability of expected income is reduced. This is because the losses of some are offset by the gains of others, resulting in a more stable overall income stream. Options A and D are incorrect as pooling risks does not necessarily increase expected income. Option B is incorrect as increasing standard deviation is not a desirable outcome.

It Is Better to Pool Risks Because You Can