How do risk-averse buyers affect adverse selection in a market where buyers have private information?
A)Risk-averse buyers reverse the adverse selection problem from a seller problem to a buyer problem.
B)Risk-averse buyers reverse the adverse selection problem from a buyer problem to a seller problem.
C)Risk aversion in buyers will reduce adverse selection.
D)Risk aversion in buyers will increase adverse selection.

Question

Quizplus · Accepted Answer

Risk-averse buyers are more likely to avoid purchasing goods or services when there is uncertainty or they perceive a high level of risk. By being more cautious, they are less likely to select products or services that are of lower quality, and may be less likely to fall victim to adverse selection. As a result, risk aversion in buyers can help reduce adverse selection in a market where buyers have private information.

How Do Risk-Averse Buyers Affect Adverse Selection in a Market