Asked by Chelsea Solis on Jul 18, 2024
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Asymmetric information always results in adverse selection.
Asymmetric Information
A situation where one party to a market transaction has more information about a product or service than the other. The result may be an under- or overallocation of resources.
Adverse Selection
A situation in insurance and finance where individuals with higher risks are more likely to purchase or participate in a plan, leading to higher than expected costs for insurers or lenders.
- Recognize the correlation between asymmetric information, adverse selection, and market outcomes.
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Learning Objectives
- Recognize the correlation between asymmetric information, adverse selection, and market outcomes.
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