An implication of asymmetric information in the insurance market is that:
A)insurance companies have perfect knowledge about the health problems of those who purchase insurance
B)the price of health insurance may reflect the costs of a healthier-than-average person
C)people with greater hidden health problems are more likely to buy health insurance than other people
D)people in average health are encouraged to purchase health insurance

Question

Quizplus · Accepted Answer

Asymmetric information refers to a situation where one party in a transaction has more information than the other. In the context of health insurance, this means that individuals who are more likely to have health problems may know it, but the insurance company does not. This can lead to adverse selection, where individuals with hidden health problems are more likely to buy insurance because they know they are more likely to need it. This can cause premiums to increase for everyone, including those in good health.

An Implication of Asymmetric Information in the Insurance Market Is