))
Investment Term for the Day - Adverse Selection
Manage episode 364691727 series 2956461
Content provided by Africa Business Radio. All podcast content including episodes, graphics, and podcast descriptions are uploaded and provided directly by Africa Business Radio or their podcast platform partner. If you believe someone is using your copyrighted work without your permission, you can follow the process outlined here https://player.fm/legal.
Adverse selection refers generally to a situation in which sellers have information that buyers do not have, or vice versa, about some aspect of product quality. In other words, it is a case where asymmetric information is exploited.
Asymmetric information, also called information failure, happens when one party to a transaction has greater material knowledge than the other party.
Typically, the more knowledgeable party is the seller. Symmetric information is when both parties have equal knowledge.
In the case of insurance, adverse selection is the tendency of those in dangerous jobs or high-risk lifestyles to purchase products like life insurance. In these cases, it is the buyer who actually has more knowledge.
To fight adverse selection, insurance companies reduce exposure to large claims by limiting coverage or raising premiums.
Become a supporter of this podcast: https://www.spreaker.com/podcast/investment-terms--4432332/support.
…
continue reading
Asymmetric information, also called information failure, happens when one party to a transaction has greater material knowledge than the other party.
Typically, the more knowledgeable party is the seller. Symmetric information is when both parties have equal knowledge.
In the case of insurance, adverse selection is the tendency of those in dangerous jobs or high-risk lifestyles to purchase products like life insurance. In these cases, it is the buyer who actually has more knowledge.
To fight adverse selection, insurance companies reduce exposure to large claims by limiting coverage or raising premiums.
Become a supporter of this podcast: https://www.spreaker.com/podcast/investment-terms--4432332/support.
304 episodes
Share
