adverse selection


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adverse selection

n.
The tendency of sellers to substitute low-quality products for high-quality products or of a uniformly priced service, such as insurance, to attract only the least profitable customers. Adverse selection arises from the inability of buyers to differentiate between high-quality and low-quality products or of sellers to differentiate between profitable and unprofitable customers.
References in periodicals archive ?
Hendren says he can do a better job of estimating the effects of adverse selection -- and show that adverse selection would be a problem if insurers opened their arms to the rejectees -- because his approach includes the rejectees as well as the applicants who end up with coverage.
Steve McKay, CEO of DriveFactor, said, 'With DriveFactor, we're giving the auto insurance market more flexibility to expand usage-based insurance, reduce adverse selection, and reward safer drivers.
SIIA) today announced the release of a new white paper, Self-Insured Group Health Plans, Stop-Loss Insurance & Adverse Selection, which has been published to correct inaccurate information that state and federal policy-makers have been provided about how the self-insurance marketplace operates.
If risk (or some component of it) is private information to the individual, then adverse selection can result.
Unfortunately, while these cost savings may be attractive to the employer, they may, unintentionally, compound the problem through adverse selection.
But, of course, the requirement is a way to avoid adverse selection - requiring only people in flood plains to purchase the insurance would make it prohibitively expensive.
We begin by using this framework to review the "textbook" adverse selection environment and its implications for insurance allocation, social welfare, and public policy.
Based on a sample of IPOs completed from January 1993 to December 2005, we find that a high number of co-managers in the syndicate are associated with a lower spread, lower adverse selection costs, and a lower probability of informed trading.
Summary paragraph: Alfred Berkeley, chairman of Pipeline Financial Group, explains how the next wave of trading technology - predictive analytics - is reducing adverse selection and increasing alpha, and could transform the current buyside trading paradigm.
Grounding all analysis in Spence (1973), Akerlof (1970) and Stiglitz's (1990) work on asymmetric information, adverse selection and signaling, this study examines students' knowledge of transfer and their attainment of that knowledge.
The strategy uses sophisticated logic designed to dynamically avoid adverse selection while minimising the trade footprint.
In the used car market context, adverse selection arises when some sellers having less-than-average quality of cars are willing to sell their cars at any given price.