FILE SELECTED // FILE 00
Adverse Selection
“Before an agreement, one party may know something that changes who chooses to participate.”
01 / SUMMARY
In short
Adverse selection occurs when private information about quality or risk changes the composition of participants in a market or contract. The less-informed side adjusts terms and may drive valuable offers away.
03 / SCENE
In the wild
If buyers cannot distinguish reliable cars from defective ones, an average offer may push sellers of good cars out.
04 / LIMIT
The limit
It is not a label for “bad” customers and does not show that every market with uneven information collapses.
FINAL NOTE
What remains
Ask who knows quality before contracting and which verifiable signal could separate the cases.