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RMI SG Exam 1

Terms in this set (57)

There is a great deal of debate regarding what people expect of their government. Government's may redistribute income through which of the follow:
1. Marketing intervention
2. Transfer payments
3. Taxation
1, 2, and 3
In module 1 we discussed the six steps of the risk management process. Risk (loss) Reduction is aimed at:
Severity; prevention is aimed at frequency, reduction is aimed at severity
Which of the following causes the "invisible hand mechanism" to break down:
1. Positive Externalities
2. Pitfalls in Decision Making
3. Negative Externalities
1 and 3; positive or negative externalities can cause breakdown
In module 1 we discussed the six steps of the risk management process. The primary post-loss objective of an organization is:
Survival
Which term best describes the "information problem" where one party to a transaction has more/better information about the risk than the other party?
Adverse selection
Fed Ex & UPS have thousands of trucks on the road every day. Each of these trucks are
an exposure
Which of the following allows individuals to substitute a small certain payment for a large uncertain possibility of a loss, in other words, what makes insurance possible?
Law of large numbers
Olivia fails to be careful with her laptop because she purchased the insurance coverage on it. Olivia's behavior is an example of
Moral hazard
In module 1 we discussed sources of risk. The possibility of a lawyer being sued because of giving poor legal advice, is an example of which source of risk
liability
Avoiding risky activity is a method of
Risk (loss) control
In module 1 we discussed risk (loss) control. Anti-lock brakes in a vehicle are an example of:
Risk (loss) prevention
There is a great deal of debate regarding what people expect of their government. Government's may correct negative externalities through which of the following:
1. Legislation
2. Transfer payments
3. Specific Taxation
1 and 3
In module 1 we discussed the costs associated with risk. Which of the following is a burden of risk on society:
1. Fear and worry
2. Need for larger emergency funds
3. The loss of additional of goods and services
1, 2, and 3
In module 1 we discussed the six steps of the risk management process. The preferred approach to risk identification is
Combination approach
Which of the following is part of government's role?
Maintaining stability
One of the core themes of the reading "A Scientific View of Risk" is that risk reduction has the following costs:
1. Monetary
2. Societal utility
3. Non-monetary
1 and 3; both monetary and non-monetary costs
The reading "A Scientific View of Risk" added what component to the definition of risk:
A time element
According to the reading "Innovation Risk: How to Make Smarter Decisions", innovation changes the trade-off between risk and
cost, risk relatives, regulation
None of the above; reward not one of the options
In module 1 we discussed the risk management. Which of the following is one of the "rules of risk management":
1. Consider the odds
2. Don't risk more than you can afford to lose
3. Minimize risk when possible
1 and 2
Which of the following are examples of the rewards that could be associated with self-drive cars:
1. Reduced traffic fatalities
2. Computer malfunctions
3. Reduced health care costs
1 and 3
According to the reading "Innovation Risk: How to Make Smarter Decisions", which of the following is NOT one of the five rules of thumb to minimize risk:
recognize that you need a model, understand mental models, expect the unexpected, check the infrastructure
Understand mental models
Which of the following is one of the ways households dispose of their income?
personal taxes, personal savings, personal consumption expenditures
All of the above
In module 1 we discussed categories of risk. Which of the following categories of risk represent the risks that are unique to a small portion of the population
secondary, static, fundamental, core
None of the above; particular isn't an option
In module 1 we discussed how you measure risk. When measuring risk, severity is synonymous with
impact
According to the reading "Innovation Risk: How to Make Smarter Decisions", important characteristics of models includes:
1. Workings of model are transparent
2. Applications are consistent
3. Results are verifiable
1, 2, 3
According to the reading "Innovation Risk: How to Make Smarter Decisions", all models are
Incomplete
In module 1 we discussed the six steps of the risk management process. Which of the following is a step in the risk management process:
1. Determine objectives
2. Identify risks
3. Implement your decision
1, 2, 3
In module 1 we discussed the six steps of the risk management process. Investments in information is a method of
Internal risk reduction
According to the reading "Innovation Risk: How to Make Smarter Decisions", a major source of risk is the imbalance that can occur between innovations in products and services and the slower changes to
human capabilities, computing power, regulation
none of the above; infrastructure isn't an option
Which of the following represents the "most likely scenario" loss amount
probable maximum loss
Which of the following shows the amount of profit earned in each outcome by adopting a course of action:
1. Regret table
2. Expected value
3. Payoff table
3
In module 1 we defined risk. What gets added to the definition of risk when looking at it from the societal level?
"...that impacts a large portion of the population"
In module 1 we discussed risk measurement. Which of the following is the best measure of risk
Standard deviation
The _________ is the minimum benefit that must be offered to get an individual to undertake an activity
certainty equivalent, utility factor, risk premium
none of the above; reservation price isn't an option
In module 3 we discussed decision rules (criteria). Which decision rule says "find the most likely outcome and pick an action that maximizes that profit"
Maximum likelihood principle
In module 3 we discussed the decision-making process. Which of the following are steps of the decision-making process:
1. Identify various possible outcomes
2. Determine the payoff function (table)
3. Review and evaluate
1 and 2
Which is an advantage of a corporation?
1. Exist beyond the death of founders(s)
2. Limited liability of ownership
3. Ability to issue equity
1, 2, and 3
Which decision rule works best with multistage decisions:
the rollback technique
Which decision rule appeals to the most pessimistic decision makers
Maximin principle
Which decision rule tells you to pick the outcome that maximizes profits
maximax principle
Common pitfalls (mistakes) in decision making include:
1. Ignoring Implicit Costs
2. Ignoring Sunk Costs
3. Calculating Average Rather than Marginal Benefits
1 and 3- read carefully
Which of the following is true regarding the risk/reward tradeoff for individuals and for organizations?
Only organizations use expected value
You decide to store your extra gasoline cans next to your furnace in the basement. Your house is destroyed by fire. In this example, what is the fire?
A peril
In module 1 we discussed the six steps of the risk management process. Insurance is an example of
Risk (loss) financing
Which decision rule uses the most information available
expectation principle
_________ describes the amount of payoff someone would have to receive to be indifferent between a certain payoff and a given gamble
Certainty equivalent
_______________ externalities occur when important benefits accrue to people other than the decision maker
positive
Utility functions are usually a function of _________
wealth
In module 1 we discussed risk financing. Paying unanticipated losses out of normal cash flows is an example of
Unplanned retention
Troy McClure is the new CEO at a NPTW, and wants to spend $3.2 B to develop the megataser 3000, a taser that tases everyone in a 20 foot radius. The owners are furious, they don't believe that this investment is in their best interests. Which term best describes the situation?
Principal-agent problem
In layman's terms, what does it mean when we say "the utility is increasing at a decreasing rate?"
when I have more wealth, each additional dollar means less to me
According to "Balancing Liberty and the Pursuit of Well-Being" which of the following are true statements:
1. The free market fails to sufficiently protect consumers
2. The government could focus more on externalities then consumers if everyone exhibited rational behavior
3. Governments need to balance competing goals
1, 2, and 3
The marginal cost of adding a new server to "A Nyce Place to Work" is $3000. The marginal benefit of the first server is $4000, but that number drops $500 for each additional server. How many servers should "A Nyce Place to Work" buy?
3
The "happy slave" problem noted that poverty does not seem to make people as miserable as it should. This implies what about how we should evaluate government decision making
none of the above
Judy is faced with the following decision.
She can either have $20 for certain (probability = 1) or she can participate in a bet where the expected outcome is $50 with a probability of 0.5 or $0 with a probability of 0.5. Judy decides that she's indifferent between the two options. What category of risk aversion best describes Judy?
Risk-averse-- judy is indifferent between $20 for sure or a gamble worth $25. That is the definition of risk aversion, willing to give up some value for certainty
In module 4 we discussed individual decision making. What type of question asks what "should be":
1. Positive Questions
2. Normative Questions
3. Consequential Questions
2
In module 1 we discussed hazards. Slippery roads or fog are examples of
physical hazard
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