Which of the following is an example of an adverse selection problem?
A) A customer purchases four apples, two of which are bruised.
B) A card shop puts its Halloween merchandise on sale on November 1st.
C) A young worker is fired after she is late for work three times in one month.
D) A man whose father had a heart attack wants to increase his life insurance coverage.

Question

Quizplus · Accepted Answer

Adverse selection occurs when an imbalance in information exists between the buyer and seller, resulting in one party exploiting the lack of information of the other. In this case, the man whose father had a heart attack likely knows more about his health risks and wants to increase his coverage, potentially leading to adverse selection for the insurer.

Which of the Following Is an Example of an Adverse