Adverse selection occurs in insurance markets because:
A)the seller has more information than the buyer.
B)the buyer has more information than the seller.
C)both the buyer and the seller have incomplete information.
D)Any of these could be the cause of adverse selection in insurance market.

Question

Quizplus · Accepted Answer

Adverse selection occurs when the buyer has more information than the seller, particularly in insurance markets. This information asymmetry leads to situations where those most likely to need insurance (and thus more likely to file a claim) are the ones most eager to purchase it, potentially leading to imbalances and higher costs for insurers.

Adverse Selection Occurs in Insurance Markets Because