Increasing the amount of information available to investors helps to reduce the problems of ________ and ________ in the financial markets.
A)adverse selection;moral hazard
B)adverse selection;risk sharing
C)moral hazard;transactions costs
D)adverse selection;economies of scale

Question

Quizplus · Accepted Answer

Adverse selection occurs when one party has more information than the other party in a transaction. By increasing the information available to investors, this problem can be reduced. Moral hazard refers to the problem of one party taking on excessive risk because they do not bear the full consequences of their actions. While increasing information may not directly address moral hazard, it may indirectly reduce the problem by enabling better monitoring and evaluation of potential investments. Options B, C, and D are incorrect because they describe different problems in financial markets that are not directly addressed by increasing the amount of information available to investors.

Increasing the Amount of Information Available to Investors Helps to Reduce