Suppose that among a group of uninsured people,the only ones who want to buy health insurance are the ones who happen to enjoy jumping out of perfectly good airplanes.This is an example of:

Question

Quizplus · Accepted Answer

Adverse selection occurs when one party in a transaction has more information than the other party, and uses that information to their advantage. In this case, the uninsured people who enjoy jumping out of airplanes are more likely to want to buy health insurance, as they are engaged in a riskier activity that could result in injury or death. Because insurance companies may not have access to this information, they may offer insurance at a lower price than is justified by the risk, and may end up only insuring people who engage in high-risk activities. This creates a situation where the insurance company is more likely to have to pay out claims, and may lead to higher premiums for all customers.

Suppose That Among a Group of Uninsured People,the Only Ones