If Tom drives a car more recklessly after he purchases a comprehensive plan, the change in his behavior is an adverse selection problem.

Name: If Tom drives a car more recklessly after he purchases a comprehensive plan, the change in his behavior is an adverse selection problem.
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Question

Quizplus · Accepted Answer

Adverse selection occurs before a transaction, when one party has more information than the other. Tom's change in behavior after purchasing insurance is an example of moral hazard, not adverse selection.

If Tom Drives a Car More Recklessly After He Purchases