Adverse selection is a self-sorting process that occurs when the information characteristics of a transaction are such that undesirable products, services or customers are attracted to it.

Question

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Adverse selection occurs when those with undesirable characteristics are more likely to participate in a transaction because they have more information about their risk profile than the other party involved in the transaction. This can lead to negative outcomes for both parties involved in the transaction.

Adverse Selection Is a Self-Sorting Process That Occurs When the Information