Adverse Selection Is

question 402

Multiple Choice

Adverse selection is

• A)the tendency of a person who is imperfectly monitored to engage in dishonest or otherwise undesirable behavior.
• B)an action taken by an uninformed party to induce an informed party to reveal information.
• C)the failure of majority voting to produce transitive preferences for society.
• D)the tendency for the mix of unobserved attributes to become undesirable from the standpoint of an uninformed party.

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Definitions:

S&P 100 Index

An American stock market index consisting of 100 large, widely held companies across multiple industries in the United States.

Exercise Price

The fixed price at which the holder of an option can buy (in the case of a call) or sell (in the case of a put) the underlying asset.

Option

A financial derivative that gives the buyer the right, but not the obligation, to buy or sell an asset at a set price on or before a given date.

Receive

To obtain or be provided with something.