Payoff rates for insurance policies? Sounds exciting.
Economists say that buying a lottery ticket is a poor use of a person's resources because the average amount won by someone playing the lottery is less than the cost of a ticket. We have a professor who disagrees.
The professor argues that this comparison does
not actually show that purchasing a ticket is a poor use of a person's resources. This is because no one claims buying insurance is a poor use of a person's resources, even though the average payout for an insurance policy is less than the average cost of buying a policy.
To most weaken the argument, we're looking for the answer choice that most undermines the professor's comparison. Let's take a look at the answer choices in question:
Quote:
(D) In general, the odds of winning the grand prize in a lottery are significantly lower than the odds of collecting a settlement from a typical insurance policy.
(D) talks about the odds of winning the
GRAND PRIZE in the lottery being lower than the odds of obtaining a settlement from an insurance company. However, the professor does not mention just the grand prize, (s)he mentions the average payout from winning
ANY PRIZE in the lottery.
If (D) told us that the odds of winning
ANY PRIZE in the lottery were much lower than the odds of receiving a payout from an insurance settlement, then this could weaken the professor's argument -- in that case, the lottery could be seen as a poor use of resources (because there is such a low chance of winning) but buying insurance could be seen as a slightly better use of resources (because there is a much higher chance of getting a settlement payout).
However, (D) does not give us that information. We have no idea how the odds of winning the
GRAND PRIZE play into the comparison between cost and
AVERAGE payout of the lottery and insurance policies. Winning the grand prize could be extremely rare without impacting the professor's stance on average payout at all.
Therefore, (D) does not significantly weaken the professor's argument and we can rule it out as the final answer.
Quote:
(E) The protection against loss that insurance provides is more important to one's well-being than is the possibility of a windfall gain.
This answer choice looks at what provides the value of buying an insurance policy. If the value of an insurance policy comes from the protection against loss that the policy provides, rather than the money gained from a successful payout, then the comparison the professor makes falls apart.
By making the comparison questionable, this answer choice weakens the professor's argument. So (E) is the correct answer.
I hope this helps!
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