Which of the following best explains the concept of 'Adverse Selection'?
A. Perfect information leading to efficient outcomes
B. Equal risk sharing between parties
C. Change in behaviour after a contract is signed
D. Situation where one party has more information before entering a contract
Answer: Option D
Solution (By JKSSB Mock Tests)
Adverse selection occurs when asymmetric information exists before a contract is signed, leading to the selection of undesirable parties (e.g., high-risk individuals buying more insurance).
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