what is the difference between moral hazard and adverse selection 
moral hazard is a phenomenon wherein being protected from the consequences of one s actions encourages additional risk taking adverse selection refers to situations in which one party utilizes information they possess that another party doesn t to ensure a trade is in their favor as an example a moral hazard is the risk that an employee who is enrolled in their company s dental insurance plan may be less concerned about their oral hygiene whereas someone who knowingly has a high risk lifestyle is making an adverse selection by taking out a life insurance policy the bottom linemoral hazards can be a high cost to businesses learning how to identify and mitigate them is essential to a business s profitability and longevity implementing practices or offering incentives that result in the risk taking party having some skin in the game are means of tackling this problem 