Adverse selection refers to the actions people take after they have entered into a transaction that make the other party to the transaction worse off.

Question

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Adverse selection refers to a situation where one party in a transaction has more or better information than the other party, typically leading to a selection of risks that the less informed party would not have chosen if they had the same information. This concept is often discussed in the context of insurance or financial markets, not the actions taken after a transaction has been entered. The description given aligns more closely with the concept of moral hazard, which involves taking riskier actions after entering into a transaction because the consequences of those actions are partially borne by the other party.

Adverse Selection Refers to the Actions People Take After They