Principles of Microeconomics / Unit 15 MIC 1408 short lesson, about 20 seconds
Adverse Selection
Captions available
The idea
Adverse selection: buyers know their own risk better than the insurer, so at a pooled price the high-risk buy, the low-risk leave, and the premium spirals. Ways out: classify buyers by risk, or require the low-risk to buy.
In practice
Auto liability is a mandate; Medicare is direct provision.
Where people slip
Below-fair premiums for one group are paid by others; insurance's law cannot be repealed.
Your place on the trail
Every lesson rests on earlier ones and opens later ones. Tap any to jump.
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