What term describes the situation where lenders cannot accurately assess investment risks because of asymmetric information, resulting in the possibility of financing poor credit risks?

Explanation

Adverse selection occurs when lenders, due to asymmetric information, are unable to distinguish between high-risk and low-risk borrowers, leading to the potential financing of bad credit risks. This differs from moral hazard, which involves changes in borrower behavior after receiving a loan. Public goods and excessive inflation are unrelated concepts in this context.