In the market for automobile insurance,adverse selection implies that
A) those who are insured might take greater risks.
B) those who are uninsured might take greater risks.
C) private information cannot be successfully screened.
D) insured and uninsured alike will take greater risks.
E) drivers with greater risks are more likely to buy insurance.

Question

Quizplus · Accepted Answer

Adverse selection in the automobile insurance market implies that drivers with greater risks are more likely to buy insurance. This is because they perceive the cost of accidents to be higher and are more willing to pay for insurance. As a result, insurance companies may end up insuring a disproportionate number of risky drivers, leading to higher claim rates and ultimately higher premiums for everyone.

In the Market for Automobile Insurance,adverse Selection Implies That