SUMMER SCHOOL 8: Risk & Disaster : Planet Money Inside one insurance policy is a world of incentives and bad behaviors. Take the final exam and get your diploma here.
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SUMMER SCHOOL 8: Risk & Disaster

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SUMMER SCHOOL 8: Risk & Disaster

SUMMER SCHOOL 8: Risk & Disaster

SUMMER SCHOOL 8: Risk & Disaster

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  • Transcript

Illustration by Therrious Davis Therrious Davis hide caption

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Therrious Davis

Illustration by Therrious Davis

Therrious Davis

Find all episodes of Planet Money Summer School here.

And take the final exam here.

When you buy insurance, the company sends you a long, detailed, almost incomprehensible description of your policy on thin paper. In very small print.

It's rare for anyone to read it from start to finish...and unheard of for a podcast to read it out loud. But today, we go there. In this episode of Summer School, we take Jacob Goldstein's home insurance policy and delve into each sub-paragraph and bullet point. And we find something surprising: the history of risk, disaster and bad behavior.

Our economists-in-residence will use this story to teach us how to think about risk on a spectrum that moves between the probability of a bad thing happening and how costly it would be. Insurance is a good solution, but it also contains some big pitfalls. How do you make sure that the right people buy the insurance? And how do you make sure that insurance won't make people behave in riskier ways? How do you figure out when insurance is worth it for you?

At the end of the episode, we give you a pep-talk for the Summer School Final Exam: eight short but fiendishly clever questions to make sure you've been listening closely. If you pass (and we have faith you will), you'll get to download a diploma-like image, suitable for framing. It might need a very small frame, though.

Concepts:

  • Correlated risk
  • Moral hazard
  • Adverse selection

Music: "Risk Test" and "Investors Assets"

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