Ashley opened an all-you-can-eat buffet restaurant.The cost per-person was based on what Ashley believed an average restaurant patron would consume.The restaurant began to lose money.Ashley concluded that her patrons had "above average" appetites,and were attracted to her restaurant because they could eat as much as they wanted while being charged an average price.A similar phenomenon exists in insurance markets.This problem is called

Question

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The problem described in the scenario is adverse selection, where the customers with higher appetites (or higher risk) are more likely to seek out the all-you-can-eat buffet (or insurance coverage) at an average price, leading to losses for the business (or insurance company).

Ashley Opened an All-You-Can-Eat Buffet Restaurant