In the automobile insurance market,adverse selection occurs when
A) drivers with greater risks buy a policy with large deductibles.
B) drivers with greater risks buy a policy with no deductibles.
C) uninsured drivers drive recklessly.
D) insured drivers drive recklessly.

Question

Quizplus · Accepted Answer

Adverse selection occurs when individuals with a higher risk of an event (such as a car accident) are more likely to purchase insurance. In the automobile insurance market, this could mean that drivers with a greater risk of accidents, such as younger or inexperienced drivers, may choose to purchase policies with no deductibles to minimize their own costs in the event of an accident. As a result, insurance companies may end up with a higher proportion of high-risk policies, leading to higher overall costs and premiums for everyone.

In the Automobile Insurance Market,adverse Selection Occurs When