Adverse selection
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Adverse selection is a term commonly used in economics, insurance, and risk management that describes a situation where market participation is affected by asymmetric information. When buyers and sellers have different information, it is known as a state of asymmetric information. Traders with better private information about the quality of a product will selectively participate in trades which benefit them the most, at the expense of the other trader. A textbook example is Akerlof's market for lemons.
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See also
- Agency cost
- Contract theory
- Community rating
- Death spiral (insurance)
- Information asymmetry
- Market for lemons
- Moral hazard
- Principal–agent problem
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