A key problem in economics occurs when one party in an interaction has more or better information than the other. This can lead to two distinct issues based on whether the information is hidden before or after an agreement is made. Match each scenario below to the specific problem it best illustrates.

Distinguishing Market Problems from Information Gaps

Match each scenario with the specific problem caused by asymmetric information that it best illustrates.

A person who obtains a comprehensive car insurance policy may subsequently be less cautious about where they park their car or how they drive, knowing that the financial costs of theft or an accident are largely covered. This scenario is a primary example of adverse selection.

Insured Driver's Risky Behavior