Adverse selection occurs when an informed individual is ________ willing to trade in situations that make trading ________ to an uninformed trading partner.
A) more; more advantageous
B) more; less advantageous
C) less; more advantageous
D) less; less advantageous

Question

Quizplus · Accepted Answer

Adverse selection occurs because the informed individual (who possesses private information) is more willing to trade in situations where the trade is less advantageous to the uninformed party (who lacks private information). Thus, the informed individual is more likely to take advantage of the uninformed party, leading to adverse selection.

Adverse Selection Occurs When an Informed Individual Is ________ Willing