Adverse selection is
A)the tendency of a person who is imperfectly monitored to engage in dishonest or otherwise undesirable behavior.
B)an action taken by an uninformed party to induce an informed party to reveal information.
C)the failure of majority voting to produce transitive preferences for society.
D)the tendency for the mix of unobserved attributes to become undesirable from the standpoint of an uninformed party.

Question

Quizplus · Accepted Answer

Adverse selection refers to the situation where one party has more information than the other and selectively uses it to benefit themselves at the expense of the other party. In this case, the uninformed party may end up with a mix of unobserved attributes that are undesirable, as they have not been able to fully assess the risk associated with the transaction.

Adverse Selection Is