An alternative method for dealing with adverse selection is to group individuals through indirect information, such as statistical discrimination. Insurance companies can’t get individuals to admit whether they’re good or bad drivers, so the companies develop statistical profiles of good and bad drivers.

Therefore, doctors in specialties that are considered higher risk pay more for their malpractice insurance. Typically, surgeons, anesthesiologists and OB/GYN physicians are charged higher premiums.

However, doctors do pay a good bit out of pocket for the insurance coverage. Depending on their practice specialty and the risks involved, doctors usually pay tens of thousands of dollars a year on medical malpractice insurance, and in some cases more. Hospitals also carry malpractice insurance.

asymmetric information definition. situation in which one party to a transaction has more information than another. adverse selection.

There are two types of asymmetric information – adverse selection and moral hazard.

Two types of problems associated with asymmetric information are adverse selection and moral hazard.

Definition of asymmetric information: This is a situation where there is imperfect knowledge. In particular, it occurs where one party has different information to another. Asymmetric information can lead to adverse selection, incomplete markets and is a type of market failure. …

In any transaction, a state of asymmetric information exists if one party has information that the other lacks. This is said to cause market failure. That is, the correct price cannot be set according to the law of supply and demand.

Requiring collateral can also reduce information asymmetry risks. Collateral reduces adverse selection by requiring a specific value of collateral, such as 20% down payment on a house, for instance. Moral hazard is reduced because the borrower can be sued if they fail to make timely payments on their loans.