A connotation, adverse selection

"Adverse selection" in economics is a rich meaning of the word, a definition which refers to the trading information asymmetry and market prices produced inferior goods expel high-quality goods, and then decreased average mass market product phenomenon.

In real economic life, there are few and inconsistent regular phenomenon. According to the conventional, lower commodity prices, demand will increase the goods; raise the prices of commodities, the commodity supply will increase. However, due toInformationThe incomplete andThe opportunism behaviorAnd, sometimes, lower commodity prices, consumers will not make increase the purchase of choice, improvePrice,ProducerDo not increase supply phenomenon. So, called the "adverse selection".

Reason two, adverse selection exist

First of all, "the complete information assumption" as the mainstreamMicro economicsA basic assumption is not established. This thesis is not to say that the "complete" two words is too idealistic, but this assumption is not a science of simplicity. Under the premise of private system selection, all the valuable things arePrivatizationThe tendency, therefore, as a factor of production and is a very important factor of production, information is also a private object. Therefore, "complete information" fundamentally denied the information is a kind of factor of production, but also fundamentally and privatizationSystemConflict condition. Study on the adverse selection in a misunderstanding is that without the use of neutral2+2Mode of thinkingBut the choices are limited in the consumer, for the insurance commodity options. Use2+2Point of view, any exchange are the two choice of + two kinds of commodities, choice is a two-way, a and B both sides are on the other side of the commodity value judgment and choice. Because of the existence of information asymmetry in reality, both choices are reverse, is not limited to hold money and goods party. Buy and sell each other, only to see the reverse choose cash buyer and no adverse selection seller, is not governed by narrow1+1Way of thinking about.

Therefore, from the2+2TheFrom the perspective ofSee, the so-called reverse, but is inverse to exchange each other, and to the choice of their own, the principles and characteristics of rational people draw on the advantages and avoid disadvantages will never be violations. Because of adverse selection is a very normal, so it is not worthEconomistWrite a great deal about.

Secondly, "the complete information assumption" contains the objective value error theoryThinking. Exchange can occur, because of differences in value cognition value subjectivity caused, if the two sides of the same things perceived value is objective, it is the same, there will be no exchange of momentum. Rational people is the people draw on the advantages and avoid disadvantages, equivalent exchange is the exchange will not hasten benefit.

Three, the adverse selection model

George Akelof(GeorgeAkerlof)In the1970Years published entitled "the market for Lemons: quality uncertainty and the market mechanism" papers, is recognized asThe economics of informationTo create the most important in literature. In theUSAIn slang, "lemon" commonly known as "defective", this article studies the defective market because plain has been rejected three or four magazine. However, George Akelof(GeorgeAkerlof)Adverse selection theory proposed in this thesis reveals a seemingly simple but profound principles of economics. Adverse selection of quality information asymmetry from buyers and sellers about cars. In the used car market, the true quality of the sellers know car, but buyers don't know. The seller will pass, the buyer is not stupid, although they can not understand the true quality of the old, only know that the average vehicle quality, may the average quality of the medium price, thus, those above are equivalent in the first-class car may withdraw from the market. The deduction is waiting for the bus, due to withdraw from the market, buyers will continue to reduce the valuation, time waiting for the bus will withdraw from the market; finally, the deduction is: the market into a car exhibition hall, in extreme cases a car are not clinch a deal. The reality is, societyVolumeLess than the equilibrium quantity. This process is called adverse selection.

Four, the adverse selection model and case analysis

To more clearlyAdverse selection model. Consider the simplest case, there are two possible types that sellers sell old:

1Theta=6000(high quality) and theta=2000(low quality), the probability of each car are1/2;

2Both parties have the same quality preference and the car to car evaluation.

Obviously, if the buyer knows the quality of the car, the equilibrium priceP=6000(high quality) orP=2000(low quality). Buyers can not know the true quality of the vehicle, if the two cars are entering the market, the average quality of the vehicleE[Theta]=4000The buyer can not guarantee, due to high prices to buy high quality=6000Car, so the highest price offeredP=4000, hope to be able to buy=6000Car. But at this price, high quality car seller will withdraw from the market, only a low dose of car=2000Sellers are willing to sell. Buyers know that high quality car after the launch, the market must be left on the low quality of the sellers. The equilibrium price is onlyP=2000, only low quality car clinch a deal, high quality cars out of the market. If the market is=6000The theta=2000The continuous distribution of reasoning, though slightly more complex, but also to prove this theory.

This example, although simple, but the basic meaning of adverse selection:

1In the case of asymmetric information, markets may be inefficient, because in the model, aThe buyerWould like to buy the car, the market -- the "invisible hand" and did not realize the car from the vendor will be transferred to the hands need to buyers. Under market regulation of supply and demand is always in a certain price to meet the wishes of both sides of the traditional economics theory.

2This"Market failure"Is" adverse selection ", namely the market only products, also is the people often said"Bad money drives out goodEffect. The traditional market competition mechanism derived conclusion -- "good money drives out bad" or "survival of the fittest and left"; however, the information asymmetry are the opposite conclusion -- "bad money drives out good" or "bad left and jig".

Adverse selection model of meaning

Theory profoundly changed the angle of analysis of the problem of adverse selection, can be said to provide a path of reverse thinking to the people, will deepen understanding market complexity, which can change a lot was that "common sense" conclusion, make the theory of effective market again suffered heavy losses.

Because of the information asymmetry is the most basic facts are most common in the market, so George Akelof(GeorgeAkerlof)The used car market model has the universal value of economics analysis. His story is the second-hand car market, can be extended toSmokeAll products, wine market, labor market and capital market etc.. Can also explain whyFake productsWith the market, because of information asymmetry, a hidden information. Adverse selection theory also shows that if an effective mechanism to curb counterfeit products can not be established, the proliferation of fake and shoddy, forming a "bad money drives out good money" consequences, and even the market.

Automobile insurance industry adverse selection

As the number of individuals to purchase domestic car gradually increased, the automobile insurance business in recent years is increasing very fast. But because cars more efficient, novice and many, many more than the original automobile traffic accident. They buy automobile insurance people because of theInsuranceA car, with a tank like, rampage, anyway, car insurance companies responsible for repair. Some people often drink and drive, can not grasp; there is the drive does not focus on, even doze. The result is the automobile traffic accidents occur frequently, collect the insurance fee is not enough to pay the car repair, car repairs. Two years down, the insurance company has been in the auto insurance projects lose millions of. From the2008Years1Month,Cao PiThe board of directors of the company are held, car insurance business problems. Through the analysis, we agreed that, the main reason is the car insurance business insurance fee loss has relatively low, as a result, the income is not worth spending. To solve this problem, the only way is to improve thePremiumThe amount of loss, otherwise it would have been. The final resolution is to improve the insurance premium. This decision the insurance company did not have the desired effect, but the automobile insurancePremium incomeBegan to decline. This is their decision makers are expected. They don't know in the economic behavior in the presence of adverse selection. Tell the adverse selection of this, willing to buy insurance is often the most risky, and charge a higher price would prevent insurance with lower risk people buy insurance. The insurance company premiums received HISTEP, low rate of escape from danger, you improve insurance prices, simply do not buy insurance. The adverse selection effect is the source of the insurance company by the master of the information is not complete. Although the company also know, in itsCustomerSome will have lower risk than others, but it does not know exactly who is low risk people. That is to say, the insurance company know the existence of certain difference between individuals, should try to turn them into good and poor risk categories, and collect different insurance fee. But it can't do that, because it does not know what kind of people are at high risk, who are at low risk. All those who actively buy insurance people are easy to be or get out of danger, because they are prone to accidents, so often eager to buy insurance, accident insurance company to have them pay. And the lower the probability of escape from danger people are often shilly-shally, if insurance prices increased, but will make their first shut sb. This is a typical reverse choice effect. Improvement of insurance prices led to the accident prone small people out of the insurance market, and rising proportion of high risk customers direct effect is the rise in insurance claims.