Adverse selection refers to when:
A) one party to a transaction has more information than the other and this results in a bargaining dispute.
B) one party selects the wrong strategy and they are displeased with their selection.
C) one party to a transaction has more information than the other and transactions occur less frequently due to the information asymmetry.
D) neither party is willing to be party to a transaction because they don't have enough information.

Question

Quizplus · Accepted Answer

Adverse selection occurs when one party to a transaction (usually the buyer) has more information than the other party (usually the seller). This results in transactions occurring less frequently due to the information asymmetry, as the seller may be hesitant to sell their product or service at a price the buyer is willing to pay, given their superior knowledge.

Adverse Selection Refers to When