In the insurance industry, high-risk customers are more likely to take out insurance. This is an example of ?
Correct answer: C. adverse selection
- A. moral hazard
- B. risk aversion
- C. adverse selection
- D. a poor gamble
Explanation
Adverse selection occurs before an insurance contract when people with greater hidden risk are more likely to seek coverage. Moral hazard occurs after coverage, when insured behaviour may become less cautious.
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