Adverse selection:
A)results from unobserved characteristics of people or commodities.
B)relates to the actions of people.
C)occurs after parties have entered into an agreement.
D)All of these statements are true.

Question

Quizplus · Accepted Answer

Adverse selection results from unobserved characteristics of people or commodities, leading to a situation where one party in a transaction has more or better information than the other. This typically occurs before parties enter into an agreement, distinguishing it from moral hazard, which relates to the actions of people after an agreement is made.

Adverse Selection