An insurance company is likely to attract customers like Clancy who want to purchase insurance because he knows better that the company that he is more likely to make a claim on a policy. What is the term used to describe the situation above?

Question

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Adverse selection occurs when one party in a transaction has more information than the other, often leading to the selection of riskier individuals, like Clancy, who are more likely to make a claim.

An Insurance Company Is Likely to Attract Customers Like Clancy