As a student, you live from paycheck to paycheck. In deciding where to open a checking account, you look for the bank which requires a low minimum balance even though it might charge higher per check fees. This is an example of:

Question

Quizplus · Accepted Answer

Adverse selection occurs when one party to a transaction has more information than the other party, and this information asymmetry leads to a bad outcome for the less-informed party. In this case, the student is the less-informed party, and the bank is the more-informed party. The student does not know the true cost of opening a checking account at the bank, and the bank knows that the student is likely to overdraft their account and incur high per-check fees. As a result, the bank is able to charge a higher interest rate on the student's checking account than it would if the student had perfect information.

As a Student, You Live from Paycheck to Paycheck