An Example of Adverse Selection Is

question 78

Multiple Choice

An example of adverse selection is

• A) when high-quality loan applicants drive low-quality loan applicants out of the market for bank loans.
• B) when a person discovers that he has a serious illness and then purchases health insurance.
• C) when consumers are not willing to pay top dollar for a used car because of imperfect information.
• D) All of the above are examples of adverse selection.

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Definitions:

Probability Distributions

A mathematical function that describes the likelihood of obtaining the possible values that a random variable can take.

Jockeying

The strategic maneuvering or positioning, often within a competitive environment, to gain advantage or to optimize one’s situation.

Queue

A linear data structure that follows a particular order in which operations are performed, specifically First In First Out (FIFO).

Exponentially Distributed

A continuous probability distribution that describes the time between events in a process where events occur continuously and independently at a constant average rate.