The notion that lenders must select from a pool of bad credit risks,because the most undesirable borrowers are those that most actively seek out a loan is known as the ________.

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Adverse selection problem is the notion that lenders must select borrowers from a pool of bad credit risks as the most undesirable borrowers are those that most actively seek out a loan. This is because higher-risk borrowers are willing to pay higher interest rates, making them more profitable for lenders, but they are also more likely to default on their loans. Thus, lenders must carefully select borrowers to reduce the risk of defaults and losses. Moral hazard refers to the problem of borrowers taking on too much risk when they know they are insured against losses. Ornamental torsion and asymmetric innovation are not relevant concepts in this context.

The Notion That Lenders Must Select from a Pool of Bad