Common strategies used to address the problem of adverse selection include using a third party verifier, signaling by sellers, and _____.
A)actuarial delimitation
B)screening of buyers
C)physical localization
D)moral hazard planning

Question

Quizplus · Accepted Answer

Screening of buyers involves gathering information about buyers to determine their level of riskiness, thereby reducing adverse selection. Actuarial delimitation involves using statistical tables to determine an individual's likelihood of being a high-risk customer, which is a strategy to address moral hazard, not adverse selection. Physical localization does not address adverse selection. Moral hazard planning involves creating incentives that encourage individuals to behave in a way that reduces the risk of negative outcomes, which is a strategy to address moral hazard, not adverse selection.

Common Strategies Used to Address the Problem of Adverse Selection