Ashley opened an all-you-can-eat buffet restaurant.The price 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

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This problem is known as adverse selection, where individuals with higher risk are more likely to seek insurance coverage, resulting in higher claims and losses for insurers. In Ashley's case, individuals with above-average appetites were attracted to the buffet and consumed more than what was expected based on the average price, resulting in losses for the restaurant.

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