Asked by Teyanna Meshae on May 21, 2024
Verified
Adverse selection is illustrated by people who take greater risks after they purchase insurance.
Adverse Selection
The tendency for the mix of unobserved attributes to become undesirable from the standpoint of an uninformed party
- Recognize the concepts of moral hazard and adverse selection within the context of insurance markets.
Verified Answer
KP
Keeley ParkerMay 27, 2024
Final Answer :
False
Explanation :
Adverse selection occurs when one party in a transaction has more information than the other, typically before the transaction occurs, leading to a selection of risks that the less informed party cannot accurately price. The scenario described is an example of moral hazard, where individuals change their behavior to take more risks knowing they are insured.
Learning Objectives
- Recognize the concepts of moral hazard and adverse selection within the context of insurance markets.
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