Discussion
According to Kenneth Arrow people do not prefer :
Answer: D
The key gives flood insurance. I could not trace the attribution to Kenneth Arrow, so the answer rests on how the four kinds of cover differ.
Arrow's work on uncertainty explains why insurance markets fail when risks are hard to pool: adverse selection and moral hazard, and risks that strike many policyholders at once. Flood damage is the standard case, because a single river flood hits a whole district together and the people most at risk are the ones most eager to buy, so insurers price it out or exclude it and many households go without.
Flight, property and life insurance are the ordinary, widely bought kinds: their risks are mostly independent from one policyholder to the next, so they can be pooled and priced. The question as worded cannot be checked against an Arrow text, which a reviewer should know.
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