Definition of Adverse Selection:

In a market where buyers cannot accurately gauge the quality of the product that they are buying, it is likely that the marketplace will contain generally poor quality products. Adverse selection was first noted by Nobel Laureate George Akerlof in 1970.

moral hazard

Definition

The risk that the presence of a contract will affect on the behavior of one or more parties. The classic example is in the insurance industry, where coverage against a loss might increase the risk-taking behavior of the insured.


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