Adverse selection can occur when
A) all persons involved in a transaction have full information.
B) one person has information not available to others.
C) post-agreement incentives result in workers shirking.
D) nobody has any information about a particular product.

Question

Quizplus · Accepted Answer

Adverse selection occurs when one party has information not available to others, leading to an imbalance of information and potentially leading to undesirable outcomes. This is commonly seen in situations such as insurance, where the party seeking insurance may have more information about their likelihood of making a claim than the insurance company.

Adverse Selection Can Occur When