One difference between moral hazard and adverse selection is
A)Moral hazard has to do with unobservable characteristics of individuals
B)Adverse selection has to do with unobservable actions of individuals
C)Adverse selection occurs when individuals least appropriate for positions are most likely to apply for them
D)Adverse selection is when you choose the wrong answer on a test

Question

One difference between moral hazard and adverse selection is
A)​Moral hazard has to do with unobservable characteristics of individuals
B)Adverse selection has to do with unobservable actions of individuals
C)Adverse selection occurs when individuals least appropriate for positions are most likely to apply for them
D)​Adverse selection is when you choose the wrong answer on a test

Quizplus · Accepted Answer

Adverse selection occurs when there is a lack of symmetric information prior to a transaction, leading to a situation where individuals who are least suitable or most risky are more likely to engage in the transaction. For example, in insurance, those most likely to need medical care are more likely to apply for health insurance. This concept contrasts with moral hazard, which deals with changes in behavior after a transaction has occurred.

One Difference Between Moral Hazard and Adverse Selection Is