Question

Successful financial intermediaries have higher earnings on their investments because they are better equipped than individuals to screen out good from bad risks, thereby reducing losses due to ________.
a. moral hazard.
b. adverse selection.
c. free-rider problem.
d. financial panics.

Answer 1

Option B

Successful financial intermediaries have higher earnings on their investments because they are better equipped than individuals to screen out good from bad risks, thereby reducing losses due to adverse selection.

Explanation:

Adverse selection commits to a circumstance in which the consumers and agents of a security commodity do not possess similar erudition accessible. In additional terms, it is a situation where asymmetric erudition is utilized.

Asymmetric data also declared as information collapse arises when unitedness participant to a deal has more inclusive corporeality consciousness than the other individual. Most erudition in a business market is conveyed through values, which suggests that adverse selection conduces to emerge from ineffective demand signs.