Adverse selection online dating
Anything a high-quality date tries to do to set themselves apart can easily be copied by the low-quality dates.
Maybe they replace their profile pic with a photo of their credit report?
In this case, the insurance company is faced with the risks of floods and burglaries and their consequences, and the problem of moral hazard arises.
Adverse selection arises when there is information asymmetry - specifically, there is private information about some characteristics or attributes that are relevant to an agreement, and that information is known to one party to an agreement but not to others.
Adverse selection describes an undesired result due to the situation where one party of a deal has more accurate and different information than the other party.
The party with less information is at a disadvantage to the party with more information.
There are two important conditions for a signal to be effective: (1) it needs to be costly; and (2) it needs to be more costly to those with lower quality attributes.
These conditions are important, because if they are not fulfilled, then those with low quality attributes could still signal themselves as having high quality attributes.
And there's still no way for a truly high-quality date to signal that they are high quality.
You log in with your Facebook profile, but unlike any apps, The League also asks for your Linked In information.
The almighty app lords put you on a waitlist and review your “application.” Based on your social media resume, it decides whether you’re in or you’re out (word to Heidi Klum).
In the case of online dating, the 'agreement' is a relationship (or even a single date) and the private information is about the quality of the person as a potential date - each person with an online dating profile (the informed party) knows whether they are a high-quality date or not, but the others who might match with them (the uninformed parties) do not.
An adverse selection problem arises because the uninformed parties cannot tell high quality dates from low quality dates.
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Conversely, moral hazard occurs when a party provides misleading information and changes his behavior when he does not have to face consequences of the risk he takes.