Adverse selection is created by
A) incentives to change behavior after two parties have reached an agreement.
B) risk.
C) signaling.
D) taxes.
E) private information.

Question

Quizplus · Accepted Answer

Adverse selection is created by private information, which occurs when one party in a transaction has more information than the other party. This can lead to the party with less information suffering from adverse selection, where they end up with a lower quality or more risky option than they would have chosen if they had access to the same information as the other party.

Adverse Selection Is Created by