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Asymmetric Information
Adverse Selection (Hidden Attributes Problem)
Adverse selection describes a market problem where one party has more information about a product's hidden attributes than the other, causing the terms of a transaction to drive certain potential participants from the exchange. It is so named because the prevailing price effectively 'selects' which goods or individuals remain in the market. [1] This can lead to a skewed outcome, such as when only the least healthy people buy health insurance at a given price, or in extreme cases, result in a missing market where no trades occur at all. [1]
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