A borrower who takes out a loan usually has better information about the potential returns and risk of the investment projects he plans to undertake than does the lender. This inequality of information is called
A)moral hazard.
B)asymmetric information.
C)noncollateralized risk.
D)adverse selection.

Question

Quizplus · Accepted Answer

Asymmetric information refers to the situation where one party has more and/or better information than the other party, leading to an unequal distribution of knowledge and potential advantages in decision-making. In this case, the borrower has more information about the investment project compared to the lender, which can lead to potential problems such as adverse selection and moral hazard.

A Borrower Who Takes Out a Loan Usually Has Better