A lender who wants to avoid the problem of adverse selection could:

Question

Quizplus · Accepted Answer

By charging a low interest rate and making the applicant prove their eligibility for it by providing information, the lender can gather information about the borrower's creditworthiness and make a more informed decision, avoiding adverse selection. Charging a very high interest rate to all loan applicants or only lending through credit cards are not optimal solutions, and charging the same average interest rate to all borrowers does not account for differences in creditworthiness.

A Lender Who Wants to Avoid the Problem of Adverse