Adverse Selection
/ˈædvɜrs səˈlɛkʃən/
Definitions
- (n.) A market phenomenon where information asymmetry causes high-risk parties to be more likely to participate, leading to inefficiency or market failure.
Adverse selection often causes insurance markets to collapse due to disproportionately high-risk applicants.
Forms
- adverse selection
Related terms
See also
Commentary
Common in insurance and contract law, adverse selection highlights the importance of disclosure and screening mechanisms in legal drafting and risk management.
This glossary is for general informational and educational purposes only. Definitions are jurisdiction-agnostic but reflect terminology and concepts primarily drawn from English and American legal traditions. Nothing herein constitutes legal advice or creates a lawyer-client relationship. Users should consult qualified counsel for advice on specific matters or jurisdictions.