A cab driver taking an out-of-town rider on a longer route to her destination is an example of adverse selection.

Question

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Adverse selection refers to a situation where one party in a transaction has more information than the other, typically leading to a disadvantage for the less informed party. The cab driver's action is an example of moral hazard, where one party takes advantage of their position after a contract is made.

A Cab Driver Taking an Out-Of-Town Rider on a Longer