A cab driver taking an out-of-town rider on a longer route to her destination is an example of an adverse selection.
Adverse selection, also known as anti selection, is a market process in which buyers or sellers of a product or service can use their private knowledge of the risk factors involved in the transaction to maximize their outcomes at the expense of the other parties.
In the insurance industry, adverse selection occurs when an applicant obtains insurance at a cost that is lower than their true level of risk. A person with a nicotine addiction receiving insurance at the same rate as someone without a nicotine addiction .
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