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Adverse Selection

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When parties select transactions that they think will benefit them, based at least partially on their own private information, that's called adverse selection. People who know they are going to need dental work are more likely to seek out dental insurance. This unfortunately drives up the price for everyone. Two ways to mitigate adverse selection in the insurance market are to mandate participation, as many localities do for car insurance, and to distinguish subpopulations based on their risk profiles, as life insurers do for smokers.

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Chapter:

Anything That Can Go Wrong, Will

Section:

Risky Business

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Inverse Thinking
Unforced Error
Antifragile
Arguing From First Principles
De-risking
Minimum Viable Product (MVP)
Premature Optimization
Ockham's Razor
Conjunction Fallacy
Overfitting
Frame of Reference
Framing
Nudging
Anchoring
Availability Bias
Filter bubble
Echo Chambers
Third story
Most Respectful Interpretation
Hanlon's Razor
Fundamental Attribution Error
Self-Serving Bias
Veil of Ignorance
Birth Lottery
Just World Hypothesis
Victim-Blame
Learned Helplessness
Paradigm Shift
Semmelweis Reflex
Confirmation Bias
Backfire Effect
Disconfirmation Bias
Cognitive Dissonance
Thinking Gray
Devil's Advocate Position
Intuition
Postmortem
Proximate Cause
Root Cause
5 Whys
Optimistic Probability Bias
Tyranny of Small Decisions
Tragedy of Commons
Spillover Effects
Public Goods
Herd Immunity
Free Rider Problem
Externalities
Coase Theorem
Cap-and-Trade
Moral Hazard
Principal-Agent Problem
Asymmetric Information
Adverse Selection
Market Failure
Goodhart's Law
Perverse Incentives
Cobra Effect
Streisand Effect
Hydra Effect
Observer Effect
Chilling Effect
Collateral Damage
Blowback
Boiling Frog
Short-termism
Technical Debt
Path Dependence
Preserving Optionality
Precautionary Principle
Information Overload
Analysis Paralysis
Perfect Is The Enemy of Good
Reversible Decisions
Hick's Law
Paradox of Choice
Decision Fatigue
Murphy's Law