Adverse selection occurs when there is
A) full information.
B) unobserved behavior.
C) an unobserved characteristic.
D) a worker who shirks because his boss does not watch him.

Question

Quizplus · Accepted Answer

Adverse selection occurs when one party in a transaction possesses information that the other party does not have, leading to the possibility of making a bad decision. This unobserved characteristic can lead to negative consequences for the party without this information.

Adverse Selection Occurs When There Is