Which statement best explains "adverse selection"?
A)The term refers to a situation where one party has an information advantage over another.
B)The term refers to the need external parties have for financial information.
C)The term refers to the fact that some people have more information than others.
D)The term refers to a situation where one party cannot observe the actions of another party.

Question

Quizplus · Accepted Answer

Adverse selection refers to a situation where one party (typically the buyer) has less information than the other party (typically the seller), resulting in the seller taking advantage of this information asymmetry and offering a product or service that is of lower quality or higher risk than what the buyer expects or desires. This can occur in many industries, including insurance, finance, and real estate.

Which Statement Best Explains "Adverse Selection