One difference between moral hazard and adverse selection is
A)Moral hazard has to do with unobservable characteristics of individuals
B)Moral hazard has to do with unobservable actions of individuals
C)Adverse selection is individuals change their behaviors because of a contract
D)Adverse selection is when you choose the wrong answer on a test

Question

One difference between moral hazard and adverse selection is
A)​Moral hazard has to do with unobservable characteristics of individuals
B)Moral hazard has to do with unobservable actions of individuals
C)Adverse selection is individuals change their behaviors because of a contract
D)​Adverse selection is when you choose the wrong answer on a test

Quizplus · Accepted Answer

Moral hazard refers to situations where one party takes on more risk because they know they are protected, often due to the actions being unobservable by the other party. Adverse selection, on the other hand, deals with the problem of asymmetric information before a transaction occurs, where one party has more or better information than the other.

One Difference Between Moral Hazard and Adverse Selection Is