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♪ [music] ♪ - [Tyler] Previously, we discussed asymmetric information and how that can cause adverse selection in markets. In this video, well tackle how asymmetric information can lead to moral hazard. Lets start with an example. Imagine youre buying a bottle of water. You probably have a pretty good idea of what youre getting, H2O, especially if youve bought the same brand of water before. The information that the seller and the buyer have is pretty close to equal. But things get more complicated if youre dealing with something like repairing your car. The mechanics says you need a Johnson rod. Do you? Do you even know what a Johnson rod is? The mechanic knows a lot more about car repair than you do, and that makes it hard to know whether the mechanic is correct or even telling the truth. You might end up paying a lot of money for car repairs you dont really need. This is another example of asymmetric information where one party to an exchange has more or better information th
