Jonathan Cutrell

Adverse Selection

Formal definition:

When a transaction has asymmetric information, the party with less information is subject to adverse selection.

How it applies

Adverse selection doesn’t have to be limited to scenarios where the decisionmaker has less information. The concept can also be applied to someone who is disadvantaged in another way. Consider asymmetric opportunity, as an example; Decisionmaking frameworks apply differently when the decisionmaker faces adversity, because there is generally a looser coupling between the decision and the outcome.

See also: Asymmetry of Information


Jonathan Cutrell

Written by Jonathan Cutrell, engineer at Clearbit and podcast host at Developer Tea. You can follow him on Twitter at @jcutrell.