​The 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 when individuals change their behaviors because of a contract
D) ​adverse selection is when you choose the wrong answer on a test

Moral Hazard

A situation in which one party engages in risky behavior or lacks incentive to guard against risk because another party bears the consequences.

Adverse Selection

A phenomenon where parties at a disadvantage due to asymmetric information are selected against in a market transaction, often leading to market failure.

Unobservable Actions

Actions taken by individuals or entities that cannot be seen or measured directly, often inferring effects through outcomes or reports.