Logical reasoning PrepTest 124 · Section 1 · Question 12

Incorrect. Jack doesn't address the mechanisms by which insurance works, so the judicious spreading of risk is out of scope.

Incorrect. Jack doesn't address the number of policyholders or how they play into the risk assessment, so this answer is out of scope.

Correct. Argument or Facts:
Facts/Argument

Valid or Flawed:
NA/Flawed

Question Type:
Misinterpretation

Stimulus Summary:
M: Buying insurance decreases my risk by spreading it out over all policyholders.

J: Wrong. Example - Buying fire insurance is a good move, but it doesn't decrease risk of fire.

Answer Anticipation:
The core idea that both individuals here discuss is how insurance addresses risk. When Melinda discusses risk, she's talking financial risk—insurance spreads the financial risk of any individual loss by spreading that risk among everyone with a policy.

Jack, on the other hand, discusses the risk of the problem occurring in the first place. Melinda doesn't think fire insurance helps to lower risk of fire; she believes it lowers how much it'll cost to recover from the problem.

So the misinterpretation on Jack's part is over what type of risk Melinda is talking about.

Answer Explanation:
This answer highlights the term that Jack misinterprets. Melinda discusses the financial risk that is posed by hazards for which one would be insurance; Jack addresses the risk that the hazard will happen in the first place.

Key Takeaway:
Misinterpretation questions are, in many ways, akin to Point at Issue questions, in that both speakers need to discuss and have a clear opinion on the misinterpreted word/expression for it to be the correct answer. As such, identifying the overlap between the two speakers is a great first step in this question type, as well.

Incorrect. It's hard to see how one could misinterpret the word "decreases."

Incorrect. Jack's example—fire insurance—would certainly count as a type of hazard insurance that Melinda is discussing, so he doesn't misinterpret what she means by it.