An example of an adverse selection problem is in insurance, where the people most likely to claim
insurance payouts are the people who will seek to buy the most generous policies.

Question

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Adverse selection refers to the situation where one party has more information than the other party in a transaction. In insurance, those who are most likely to make claims are more likely to purchase insurance, which can lead to higher premiums and less profit for the insurance company.

An Example of an Adverse Selection Problem Is in Insurance