Question

Asymmetric Information plays an important part in financial markets, to include your own buying and selling habits. Perhaps you’re looking at buying a new car and are trading in your old one. Perhaps it’s a house or simply a textbook on-line. Adverse selection and moral hazard are two problems you’re inevitably going to face at some point, and most likely already have. Select an article you may have bought or sold in the past, or might purchase in the future. Describe how you’ve been affected using the meaning behind this discussion board and the chapter materials. Talk also to whether or not you’ve been the cause of the adverse selection efforts, why it happened and how you felt. Do you appreciate this possible happening to you? And how then does it affect markets on a larger scale?

Answer 1

I recently bought a second hand car.

I read an advertisement in the newspaper stating that the car was 3 years old and with good performance.

I went to meet the owner and went for a test drive. After negotiations, I bought the car at what i felt a good price.

However, within one week i realized that the car gave a very poor mileage and often broke down in the middle of the road and required several repairing from time to time.

I realized that the seller had not disclosed complete information to me because of which i ended up making a poor choice, also known as adverse selection.

Although there is nothing i can do about it now, but least i can do is be careful in the future purchases especially in the used goods market and make sure entire information is disclosed on paper and signed with a contract