When the potential borrowers who are the most likely to default are the ones most actively seeking a loan,________ is said to exist.
A) asymmetric information
B) adverse selection
C) moral hazard
D) fraud

Question

Quizplus · Accepted Answer

Adverse selection occurs when the individuals who are most likely to experience negative outcomes are also the ones most likely to seek out a particular product or service. In the case of lending, borrowers who are likely to default on their loans may be more motivated to seek out loans than borrowers who are not likely to default, leading to adverse selection.

When the Potential Borrowers Who Are the Most Likely to Default