Final answer:
Subjective risk, which is based on individual perception, can certainly exist without corresponding objective risk, which is measurable and quantifiable. This has implications in the field of insurance where both types of risks are considered in the modeling and provision of insurance products. Understanding the interplay between subjective and objective risk is essential for both insurers and consumers.
Step-by-step explanation:
True or False. Subjective risk can exist even where objective risk does not. This statement is true. The concept of subjective risk refers to the individual perception or belief about the likelihood and impact of risk, which can be influenced by personal experiences, emotions, and biases. This form of risk can be present even in the absence of objective risk, which is quantifiable and measurable. For example, a person may feel anxious about flying despite statistical evidence showing it's one of the safer modes of transportation.
All insurance involves imperfect information. At a basic level, no one can predict future events with absolute certainty. Imperfect information also affects the estimation of risk for individuals, making it challenging for insurance companies to precisely gauge the risk of, for instance, a specific 20-year-old male driver from New York City having an accident. Subjective risk perceptions play a significant role in the insurance industry as insurers work with the available data to estimate risk and individuals decide on the levels of coverage based on their own risk perceptions.
In the field of risk management, understanding the difference between subjective and objective risk is crucial, as it shapes both the provision of insurance products and consumer behavior. The presence of subjective risk without objective risk highlights the complex nature of risk perception and the challenges it presents to personal decision-making and insurance modeling.