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Investment Strategies in Private Equity
Summer 2003| The Journal of Private Equity | Varun Sood
Adverse selection arises in a market
where buyers cannot accurately gauge the
quality of the product that they are buying. It
suggests that in such a case, the marketplace
most likely will contain generally poor-quality
products. This concept, also referred to as the
“hidden information” problem, is well known
in areas such as insurance and banking. In
simple terms, the theory is that there will
always be a seller for a poor-quality good,
because a seller of such items will always want
to sell. Therefore, by “self-selection,” poor quality
goods will be overrepresented in offers
made to buyers as well as in those accepted for
purchase.
private_equity  asymmetrical  moral_hazards  investing  strategies  overrepresentation  self-selection  adverse_selection  latent  hidden  Gresham's_law 
november 2011 by jerryking
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