One difference between moral hazard and adverse selection is
A)Adverse selection has to do with unobservable characteristics of individuals
B)Moral hazard has to do with unobservable actions of individuals
C)Adverse selection is individuals change their behaviors because of a contract
D)Only A&B

Question

​One difference between moral hazard and adverse selection is
A)​Adverse selection has to do with unobservable characteristics of individuals
B)Moral hazard has to do with unobservable actions of individuals
C)Adverse selection is individuals change their behaviors because of a contract
D)​Only A&B

Quizplus · Accepted Answer

Adverse selection refers to situations where sellers have information that buyers do not, or vice versa, about some aspect of product quality. In contrast, moral hazard occurs when one party to a transaction cannot observe the actions of the other. Choices A and B accurately describe these concepts, making D the correct answer.

​One Difference Between Moral Hazard and Adverse Selection Is

One Difference Between Moral Hazard and Adverse Selection Is