An example of adverse selection is:
A) a doctor prescribing an unnecessary procedure.
B) a real estate agent selling a house faster and at a lower price.
C) a politician using information unknown to voters to profit.
D) an unhealthy person buying health insurance.

Question

Quizplus · Accepted Answer

Adverse selection refers to situations where one party has more information than the other, leading to the other party making a decision that is not in their best interest. An unhealthy person buying health insurance is an example of adverse selection because the insurance company is unaware of the person's preexisting conditions, and the person is more likely to use the insurance to cover healthcare costs. This can lead to higher insurance premiums for all, as the insurance company has to cover the higher healthcare costs associated with unhealthy individuals.

An Example of Adverse Selection Is