Because of the adverse selection problem,
A) good credit risks are more likely to seek loans, causing lenders to make a disproportionate amount of loans to good credit risks.
B) lenders may refuse loans to individuals with high net worth, because of their greater proclivity to "skip town."
C) lenders are reluctant to make loans that are not secured by collateral.
D) all of the above.

Question

Quizplus · Accepted Answer

Adverse selection refers to the problem where lenders have difficulty distinguishing between high-risk and low-risk borrowers. As a result, they may become more cautious and prefer to make loans that are secured by collateral to mitigate the risk of default. This does not necessarily mean that good credit risks are more likely to seek loans or that lenders refuse loans to individuals with high net worth for fear they will "skip town."

Because of the Adverse Selection Problem