Adverse selection means that if one party in a market transaction can use more information than the other party to make profits for itself, and the other party is damaged, it is difficult to make a trading decision smoothly because of the information disadvantage, then the price will be distorted, which will lose the role of balancing supply and demand and promoting transactions, thus leading to the reduction of market efficiency.

Moral hazard usually refers to the behavior of one party using more than one party's information to purposefully harm the interests of the other party and increase its own interests after the signing of a transaction agreement.

Extended data:

The basic meaning of adverse selection:

1. In the case of asymmetric information, the operation of the market may be inefficient, because in the above model, some buyers are willing to pay a high price for a good car, and the market-"invisible hand" has not realized the transfer of a good car from the seller to the buyer in need.

2. This "market failure" is manifested as "adverse selection", that is, only defective products are left in the market, which is what people usually call the "bad money drives out good money" effect.

References:

Baidu encyclopedia-adverse selection