adverse selection

noun

Definition of adverse selection

economics

  1. :  a market phenomenon in which one party in a potential transaction has information that the other party lacks so that the transaction is more likely to be favorable to the party having the information and which causes market prices to be adjusted to compensate for the potential unfavorable results for the party lacking the information An example of adverse selection is the used-car market in which the seller knows more about the true condition of the car than the buyer, providing incentive to attempt to sell vehicles that are in worse condition than they appear, thus lowering the overall price buyers are willing to pay for used cars. Another example is the health insurance market in which the buyers may know more about their health problems than the insurers, providing more incentive for less healthy individuals to seek insurance, thus raising the overall price at which providers are willing to make insurance available to all buyers. Expect other insurers to follow suit as adverse selection causes premiums for existing child-only policies to rise. — Michael F. Cannon, Washington Times, 23 Sept. 2010

There's more!

Love words? You must — there are over 200,000 words in our free online dictionary, but you are looking for one that’s only in the Merriam-Webster Unabridged Dictionary.

Start your free trial today and get unlimited access to America's largest dictionary, with:

  • More than 250,000 words that aren't in our free dictionary
  • Expanded definitions, etymologies, and usage notes
  • Advanced search features
  • Ad free!
Already a subscriber? Log in.

First Known Use of adverse selection

1899


Seen and Heard

What made you want to look up adverse selection? Please tell us where you read or heard it (including the quote, if possible).

Love words? Need even more definitions?

Subscribe to America's largest dictionary and get thousands more definitions and advanced search—ad free!

WORD OF THE DAY

done merely as a duty

Get Word of the Day daily email!

Love words? Need even more definitions?

Subscribe to America's largest dictionary and get thousands more definitions and advanced search—ad free!