Adverse selection is a situation where
A)a party of a transaction undertakes an unobservable action at the detriment of the second party after contracting takes place
B)a party of a transaction possesses an unobservable attribute which is unknown to the second party prior to contracting
C)the informed party must send a costless signal to prevent market break down
D)both a and c
E)both b and c

Question

Quizplus · Accepted Answer

Adverse selection occurs when one party in a transaction has more or better information than the other party, typically before a contract is made, leading to an imbalance.

Adverse Selection Is a Situation Where