The _______________________ best describes a situation where the least desirable individuals are the same individuals who pursue a loan most diligently.
A)asymmetric information
B)adverse selection
C)moral hazard
D)All of the above are correct.

Question

Quizplus · Accepted Answer

Adverse selection is a situation where the individuals who are most likely to carry out undesirable actions are also the ones who actively seek out a loan. This leads to a higher risk for the lender and can result in higher interest rates or stricter terms being offered. Asymmetric information refers to a situation where one party has more information than the other, while moral hazard refers to the risk that the borrower may behave in a risky or irresponsible manner once they have received the loan. While these concepts are related, adverse selection best describes the specific situation stated above.

The _______________________ Best Describes a Situation Where the Least Desirable