General Setup Edit
Has two different meanings. In most of the cases adverse refers to the theory of lemons with a "harmful" effect to the market. Second one is the "positive" incentives based adverse selection, where certain setup of requirenments allows to pick out appropriate candidates.
"Harmful" Adverse selection Edit
Adverse selection, anti-selection, or negative selection is a term used in economics, insurance, risk management, and statistics. It refers to a market process in which undesired results occur when buyers and sellers have asymmetric information (access to different information); the "bad" customers are more likely to apply for the service. For example, a bank that sets one price for all of its checking account (current account) customers runs the risk of being adversely selected against by its low-balance, high-activity (and hence least profitable) customers. Two ways to model adverse selection are to employ signaling games and screening games. (wikipedia)
Incentives based adverse selection approach Edit
on the go