ELI5: adverse selection

high confidence

April 12, 2026

// explanation

// eli5Imagine you're selling your old toys, but you know which ones are broken and which ones work perfectly. The person buying them doesn't know the difference. So they might only offer a low price because they're worried they'll get a broken toy. This makes people with good toys less likely to sell them. That's adverse selection—when one person knows secrets the other doesn't, it messes up the deal. [2][3]

// sources

[1]Adverse selection - Wikipedia

In economics, insurance, and risk management, adverse selection is a market situation where asymmetric information results in a party taking advantage of ...

[2]Adverse Selection Explained: Definition, Effects, and the Lemons ...

Aug 23, 2025 ... Adverse selection occurs when one party in a transaction has more information than the other, leading to market inefficiencies.

[3]What is adverse selection? - Healthinsurance.org

Adverse selection refers to a situation in which the buyers and sellers of an insurance product do not have the same information available.

[4]Adverse Selection in Health Insurance - NBER

Jul 1, 1997 ... Such adverse selection induces three types of losses: efficiency losses from individuals being allocated to the wrong plans; risk sharing losses ...

[5]Risk Pooling: How Health Insurance in the Individual Market Works

Adverse selection is a byproduct of a voluntary health insurance market in which people can choose whether and when to purchase insurance coverage, depending in ...

[6]Asymmetric Information, Adverse Selection & Moral Hazard | Economics Explainedvideo

Video by INOMICS

[7]Asymmetric Information and Used Carsvideo

Video by Marginal Revolution University

[8]Adverse Selection on the Insurance Examvideo

Video by Insurance Exam Queen

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