People with few valuables won't want property insurance. This is an example of a(n) _____ problem for insurance companies.
A) adverse selection
B) moral hazard
C) both of the above
D) neither of the above

Question

Quizplus · Accepted Answer

Adverse selection occurs when there is a lack of symmetric information prior to a transaction, leading to a situation where individuals more likely to file a claim are also more likely to purchase insurance. This example illustrates how people with fewer valuables (and thus, presumably, a lower likelihood of filing a claim) might opt out of insurance, leaving a pool of insured individuals who are more likely to file claims.

People with Few Valuables Won't Want Property Insurance