17 The Blank Slate
Imagine visiting your doctor for a medical exam. At the end, your doctor says, “There is a significant chance that you will get very sick in three years. Thank you for coming in.” Then your doctor walks out and begins a session with her next patient. You would be flabbergasted. Why didn’t she tell you what was going to make you sick? Why didn’t she explain what you could do to reduce your chances of getting sick?
While this story seems implausible, it happens in the insurance industry every day. Insurance firms charge some people higher insurance premiums than others. Why? Because they predict that certain customers are more likely than others to suffer a loss. How do insurance firms know who is at greater risk? Because ...
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