Vanessa was hired by Janet to carry out critical tasks in her organization. However, in this case, Vanessa misrepresented her skills, knowledge, and abilities. Janet did not have exact knowledge about whether Vanessa could carry out her duties well. This case is an example of adverse selection.
Adverse selection is a market condition in which buyers and sellers have unequal or asymmetric information. This asymmetrical information or knowledge distorts the market and leads it to failure. The term "adverse selection," also referred to as "antiselection," is used in economics, risk management and insurance. It was the insurance industry that first applied the concept of adverse selection to describe a greater probability that people electing to purchase insurance policies.
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