Which of the following is not an example of an adverse selection problem?
A)A homeowner purchases a refrigerator that the seller knows has a history of leaking.
B)A highly productive worker quits her job after a salary cut knowing that she can make more at a different job.
C)A major league baseball player performs poorly in his second season after signing a multi-million dollar contract.
D)A contractor uses low quality materials for construction but charges for higher quality materials.

Question

Quizplus · Accepted Answer

Option A, B, and D involve one party having information that the other party does not, which is characteristic of adverse selection. Option C, however, is simply an example of a player performing poorly despite having a high salary, which is not an adverse selection problem.

Which of the Following Is Not an Example of an Adverse