> In economics, insurance, and risk management, adverse selection is a market situation where buyers and sellers have different information, so that a participant might participate selectively in trades which benefit them the most, at the expense of the other trader. A textbook example is Akerlof's market for lemons.
> The party without the information is worried about an unfair ("rigged") trade, which occurs when the party who has all the information uses it to their advantage. The fear of rigged trade can prompt the worried party to withdraw from the interaction, diminishing the volume of trade in the market. This can cause a knock-on effect and the unraveling of the market. An additional implication of this potential for market collapse is that it can work as an entry deterrence that leads to high margins without additional entry.
> Buyers sometimes have better information about how much benefit they can extract from a service. For example, an all-you-can-eat buffet restaurant that sets one price for all customers risks being adversely selected against by high appetite and hence, the least profitable customers. The restaurant has no way of knowing whether a given customer has a high or low appetite. The customer is the only one who knows if they have a high or low appetite. In this case the high appetite customers are more likely to use the information they have and to go to the restaurant.
> In economics, insurance, and risk management, adverse selection is a market situation where buyers and sellers have different information, so that a participant might participate selectively in trades which benefit them the most, at the expense of the other trader. A textbook example is Akerlof's market for lemons.
> The party without the information is worried about an unfair ("rigged") trade, which occurs when the party who has all the information uses it to their advantage. The fear of rigged trade can prompt the worried party to withdraw from the interaction, diminishing the volume of trade in the market. This can cause a knock-on effect and the unraveling of the market. An additional implication of this potential for market collapse is that it can work as an entry deterrence that leads to high margins without additional entry.
> Buyers sometimes have better information about how much benefit they can extract from a service. For example, an all-you-can-eat buffet restaurant that sets one price for all customers risks being adversely selected against by high appetite and hence, the least profitable customers. The restaurant has no way of knowing whether a given customer has a high or low appetite. The customer is the only one who knows if they have a high or low appetite. In this case the high appetite customers are more likely to use the information they have and to go to the restaurant.
https://en.wikipedia.org/wiki/Adverse_selection