Adverse selection

Adverse selection is the problem that arises when one party knows more about the quality of the good than the other, and as a result, the party with less knowledge must worry about ending up at a disadvantage.

Definition

According to Principles of Economics by Timothy Taylor (3rd edition),

Adverse selection. The problem that arises when one party knows more about the quality of the good than the other, and as a result, the party with less knowledge must worry about ending up at a disadvantage.

According to Macroeconomics by Mankiw (7th edition),

Adverse selection. An unfavorable sorting of individuals by their own choices; for example, in efficiency-wage theory, when a wage cut induces good workers to quit and bad workers to remain with the firm.