Answer to Question #213432 in Microeconomics for Tanya

Question

in what Circumstance Adverse Selection and Moral hazard different. Can one exist without the other.

Answer 1

Adverse selection is the phenomena wherein bad risks are more likely to purchase insurance than positive risks. When it comes to life and health insurance, adverse selection is viewed as crucial. The phenomenon of moral hazard refers to how having insurance can influence one's behavior. If you're insured, you're more likely to be careless.