Adverse selection:
A)occurs when buyers and sellers have different information about the riskiness of a situation.
B)can result in a failure to complete transactions that would have been possible if both sides had the same information.
C)refers to the tendency for people with higher risk to be drawn toward insurance.
D)All of these are true.

Question

Quizplus · Accepted Answer

Adverse selection involves situations where there is asymmetric information between buyers and sellers, leading to transactions that might not occur if both parties had the same information. It particularly affects insurance markets, where individuals with a higher risk are more likely to seek insurance, a phenomenon that encompasses all the aspects described in options A, B, and C.

Adverse Selection