In the 1973 movie Save the Tiger,Jack Lemmon plays Harry Stoner,the CEO of a clothing manufacturer whose business has fallen on hard times.At one point in the movie,Stoner convinces his partner to hire someone to burn one of their buildings to collect on their insurance policy.What term refers to the information problem that led the insurance company to sell a policy for this building to Stoner and his partner?

Question

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Adverse selection refers to a situation where the insurance company is unaware of important information about the insured, and as a result, the insured may be more likely to file a claim. In this case, Stoner and his partner knew that the building was at high risk of being burned down, but the insurance company did not have access to this information, making it an example of adverse selection. Rational ignorance, the principal-agent problem, and moral hazard are not applicable to this scenario.

In the 1973 Movie Save the Tiger,Jack Lemmon Plays Harry