The following is an example of adverse selection
A)A majority of those applying for well paid jobs are well qualified
B)More reckless drivers opt for cars with fewer safety devices
C)Individuals living in less secure neighborhoods want to buy less insurance
D)Individuals with a strong family history of heart diseases opt to buy more insurance

Question

The following is an example of adverse selection​
A)​A majority of those applying for well paid jobs are well qualified
B)More reckless drivers opt for cars with fewer safety devices
C)Individuals living in less secure neighborhoods want to buy less insurance
D)​Individuals with a strong family history of heart diseases opt to buy more insurance

Quizplus · Accepted Answer

Adverse selection occurs when one party in a transaction has more information than the other, typically leading to a market inefficiency. In this case, individuals with a strong family history of heart diseases opting to buy more insurance is an example of adverse selection because they have more information about their health risks than the insurance company. This can lead to a situation where the insurance pool is made up of higher-risk individuals than anticipated, potentially driving up costs for the insurer.

The Following Is an Example of Adverse Selection​

The Following Is an Example of Adverse Selection