A firm with above-average risk is more likely to purchase insurance.This is an example of:
A)adverse selection.
B)moral hazard.
C)the insurance dilemma.
D)actuarial fairness.
E)insurance risk.

Question

Quizplus · Accepted Answer

Adverse selection occurs when one party in a transaction has more information than the other, typically leading to a situation where those most likely to produce a negative outcome are the ones who seek to engage in the transaction—in this case, insurance.

A Firm with Above-Average Risk Is More Likely to Purchase