Adverse selection describes a situation in which:
A)the buyers of insurance consistently make the wrong decision and buy too much insurance.
B)insurance companies find most of their customers coming from high risk groups.
C)insurance companies find most of their customers coming from low risk groups.
D)the buyers of insurance can reduce the probability of occurrence of the risky event against which they are insured.

Question

Quizplus · Accepted Answer

Adverse selection occurs when insurance companies attract a disproportionate number of customers from high-risk groups, who are more likely to file insurance claims. This can lead to higher premiums for everyone, and can even drive low-risk customers away from the market because they feel they are subsidizing the high-risk customers.

Adverse Selection Describes a Situation in Which