When a trading opportunity is presented to a heterogeneous group of potential traders, those who accept it will be often
A)worse-on the average, than those who do not accept it.
B)better, on average, than those who do not accept it.
C)no different than those who do not.
D)smarter, on average, than those who do not accept it than those who do not.

Question

Quizplus · Accepted Answer

This phenomenon is known as adverse selection. Those who accept the trading opportunity are likely to have more information about the potential risks and rewards involved, and therefore more likely to have a higher tolerance for risk. As a result, on average, those who accept the opportunity will be worse-off than those who do not.

When a Trading Opportunity Is Presented to a Heterogeneous Group