Asymmetric information before a transaction takes place generates the problem of

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Asymmetric information before a transaction takes place generates the problem of adverse selection. Adverse selection refers to a situation in which the less informed party in a transaction is at a disadvantage because they cannot distinguish between high-risk and low-risk customers. This problem can occur in insurance markets, credit markets, and other types of markets where one party has more information than the other.

Asymmetric Information Before a Transaction Takes Place Generates the Problem