Which of the following leads to adverse selection in a market?
A) Signaling
B) Externalities
C) Uncertainty
D) Asymmetric information
E) Moral hazard

Question

Quizplus · Accepted Answer

Adverse selection occurs when one party in a transaction has more information than the other, leading to a selection bias in the market. Asymmetric information, where one party has more information than the other, is the main cause of adverse selection. The other options listed can also cause market inefficiencies, but do not necessarily lead to adverse selection.

Which of the Following Leads to Adverse Selection in a Market