Asked by Celeste LaFrea on Sep 24, 2024
Verified
Information gathering for an adverse selection happens
A) Before the agent is hired
B) After the agent is hired
C) After the agent is fired
D) None of the above
Adverse Selection
A situation in which one party in a transaction has more information than the other, leading to imbalanced and inefficient market outcomes, commonly seen in insurance markets.
Information Gathering
The process of collecting data or information for specific purposes, often used in decision-making.
- Comprehend the principle of adverse selection as a challenge faced prior to the formation of a contract.
- Identify the essentiality of information collection for the solution of agency dilemmas.
Verified Answer
JH
Jacob Hughes1 day ago
Final Answer :
A
Explanation :
Information gathering for adverse selection happens before the agent is hired. This is because adverse selection refers to the situation where one party has more information than the other, leading to an imbalance in the transaction. In the case of insurance, the insurer needs to assess the risk of the potential policyholder before agreeing to insure them. Therefore, information gathering is necessary before the agent is hired to avoid adverse selection.
Learning Objectives
- Comprehend the principle of adverse selection as a challenge faced prior to the formation of a contract.
- Identify the essentiality of information collection for the solution of agency dilemmas.