The adverse selection problem is a likely explanation for the fact that
A)some parents use video cameras to monitor the nannies caring for their children.
B)some corporate managers were recently sent to prison for enriching themselves at the expense of shareholders.
C)people in average health may be discouraged from buying health insurance by the high price.
D)gifts can be interpreted as signals.

Question

Quizplus · Accepted Answer

The adverse selection problem occurs when individuals with higher risks or costs are more likely to buy insurance than those with lower risks or costs. This results in higher prices for insurance, which may discourage those with lower risks from purchasing it. Therefore, people in average health may be discouraged from buying health insurance by the high price.

The Adverse Selection Problem Is a Likely Explanation for the Fact