Answer Happy

Problem 1: For each of the following scenarios state whether these are examples of moral hazard or adverse selection and briefly justify your answer: a) Online real estate company Zillow recently closed their "iBuying" business as it was losing money. The business model was to purchase and resell houses that were undervalued according to Zillow's algorithm. One interpretation of what went wrong is that sellers who know their house has problems that are not apparent in Zillow's data (for example, ugly views or unpleasant neighbors) are more likely to sell to Zillow (so that the houses are not undervalued after all). b) If governments are known to bail out banks that lose money, banks may have less incentive to carefully screen borrowers to make sure they are likely to repay their loans.