Instead it went against the interests of the

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objective opinions. Instead, it went against the interests of the investors, but the best interest for their own firms. 3. Describe whether each of the following is an example of adverse selection or moral hazard, and why. a. When I drive a rental car, I drive much more recklessly than when I drive my own car. Moral Hazard. People tend to make riskier moves, so it is Moral hazard. b. The sickest people are the ones most likely to sign up for health insurance. Adverse selection. The health insurance is when people are health, they buy the insurance to insure that when they get sick they can be taking care of. But the sickest person is already sick, they might get the money from the insurance company but it go against the best interest of themselves which is to be health, so that’s why it’s a adverse selection. The result won’t be good and it is the sickest person’s choice. c. Weasel Wannabe took out a business loan from Firstbank to start a hot dog stand, but instead spent the money on a trip to Aruba. Moral hazard. After he took out the business loan from the bank, the incentive of Mr. Wannabe to make riskier investment increase, so this is a Moral Hazard. d. Neighborhoods with high levels of student housing and low levels of owner- occupied housing tend to deteriorate more quickly than other neighborhoods.
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