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FINANCE ECONOMICS 5. (8 points) Define Adverse Selection. Explain why adverse selection can be problematic in...

FINANCE ECONOMICS

5. (8 points) Define Adverse Selection. Explain why adverse selection can be problematic in the following insurance markets. (What does the insured know that the insurer doesn’t know?)

Life Insurance

Car Insurance

Health Insurance

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Answer #1

hen one party Adveyse selectton is w involved in a transaction ho has move than the other porty Life tnsurance-the insurer does not knouo the Tiski taken by the inSoved which put life at ntsk Cax Insurance -The nsurex does not knoo the quatty of the cor o obrts of insured the drtrvin Health-わし, ir sure« does, not knou the healt condit br of their , ured ovte lifestyu habits of the insured.

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