Adverse Selection
The tendency for traders with better private information about the quality of a product to selectively participate in trades which benefit them the most.
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Origin
Formalized by economist George Akerlof in his 1970 paper "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism", published in the Quarterly Journal of Economics. Akerlof demonstrated how information asymmetry in used car markets causes quality to degrade, as sellers with better knowledge selectively trade defective goods ("lemons"). The paper, completed in 1967 but rejected by three journals before acceptance, became foundational in information economics.
Updated February 22, 2026