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Which is CORRECT about information asymmetry and adverseselectionInformation asymmetry refers to the situation when buyers havemore information on the product than the sellers.Information asymmetry is the result of adverse selection.In a used car market, if sellers with good cars are unwillingto sell at a large discount, then only bad cars will get sold. Thissuboptimal outcome is so-called “adverse selection”.Due to information asymmetry, market investors interpret firm’sSEO announcement positively because they believe insiders considerthe firm undervalued.
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