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Topic: Adverse Selection Give an example of a situation that led (or could have) to adverse...

Topic: Adverse Selection

Give an example of a situation that led (or could have) to adverse selection at your place of work. (Education/Community College)

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Adverse selection refers to asymmetric information problem . Suppose a company has decided to hire accountant because there is a vacancy . Now a company gives advertisement about the vacancy and several people hire . It is difficult to distinguish between good hire and a bad hire . The company does not know each applicant's true potential . Here education , experience etc acts as signalling . But still there is a chance of bad hire due to adverse selection and asymmetric information .

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