Moral Hazard & Adverse Selection

Adverse selection and moral hazard are both caused by asymmetrical information and are sometimes difficult to distinguish from one another.

• Adverse selection is the selection bias that happens before a contract happens and moral hazard is the change in behavior that happens after a contract is in place.  
• Adverse selection is the difference in behavior between low-risk and high-cost individuals which causes high-cost people to self-select a way to offload their expenses on someone else like insurance.  Moral hazard is when someone does too much of something because they know they can offload their expenses on someone else. 

For more, see medianism.org