When bank loan officers screen loan applicants to eliminate potentially bad risks, they are attempting to mitigate the problem of

Question

Quizplus · Accepted Answer

Adverse selection occurs when borrowers who are more likely to default seek out loans more so than those who are less likely to default. Loan officers screen loan applicants to eliminate potentially bad risks as a way to mitigate the adverse selection problem.

When Bank Loan Officers Screen Loan Applicants to Eliminate Potentially