adverse selection

English

Noun

adverse selection (uncountable)

1. (economics, business, insurance) The process by which the price and quantity of goods or services in a given market is altered due to one party having information that the other party cannot have at reasonable cost.

   It is adverse selection that leads US workers who anticipate high family medical expenditure to seek employers with superior health insurance coverage for their employees.

   The large number of "lemons" in the used-car market is the result of adverse selection.

See also

• lemon
• moral hazard
• self-selection