In the market for automobile insurance,adverse selection implies that
A) drivers with greater risks want to buy a policy without deductibles.
B) drivers with greater risks want to buy a policy with large deductibles.
C) uninsured drivers will drive recklessly.
D) insured drivers will drive recklessly.
E) moral hazard does not exist in this market.

Question

Quizplus · Accepted Answer

Adverse selection in the context of automobile insurance refers to the phenomenon where individuals who perceive themselves to be at a higher risk of filing a claim are more likely to purchase insurance, or opt for policies with lower deductibles, because they anticipate a greater likelihood of needing to use the insurance. This is because drivers with greater risks (e.g., those who are more likely to get into accidents) would prefer to have a policy that offers more comprehensive coverage with less out-of-pocket expenses at the time of a claim, hence the preference for policies without deductibles.

In the Market for Automobile Insurance,adverse Selection Implies That