Adverse selection in insurance requires that
A)potential customers face different levels risk
B)potential customers facing more risk are no more interested in purchasing insurance
C)people are not risk averse
D)insurers can tell higher risk people from lower risk people

Question

Quizplus · Accepted Answer

Adverse selection occurs when potential customers face different levels of risk, and those with higher risk are more likely to purchase insurance, leading to a disproportionate number of high-risk individuals in the insured pool.

Adverse Selection in Insurance Requires That