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Adverse selection and moral hazard are problems that arise in the presence of asymmetric information.
Adverse Selection
A situation where asymmetric information leads to the selection of poor risks or unwanted results, commonly discussed in insurance markets and financial services.
Moral Hazard
The situation where one party is more likely to take risks because the negative consequences of those risks will be felt by another party.
Asymmetric Information
Occurs when one party in a transaction has more or superior information compared to another, affecting decision-making.
- Acquire knowledge on the idea of information asymmetry and its effects on market dynamics.
- Uncover and delineate the issues surrounding adverse selection and moral hazard.
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Learning Objectives
- Acquire knowledge on the idea of information asymmetry and its effects on market dynamics.
- Uncover and delineate the issues surrounding adverse selection and moral hazard.
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