The concept of adverse selection helps to explain

Question

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Adverse selection refers to a situation where sellers have information that buyers do not, or vice versa, about some aspect of product quality. In the context of financial markets, this can lead to market failure as bad credit risks are more likely to seek loans than good credit risks, prompting lenders to protect themselves. This problem is a key reason financial markets are heavily regulated, to ensure information is as symmetrical as possible and to protect against market failure.

The Concept of Adverse Selection Helps to Explain