Asymmetric Information in Finance Explained - Raghavendra Rau

Video Description

In every financial transaction, one side has more information than the other. For example, when someone buys a used car, the seller will know better than the buyer whether the car is a plum or a lemon. Does more information leave you better off? One of the fascinating ideas behind the concept of asymmetric information is that more information can lead to you being actually worse off. Chapters 00:00 Introduction 01:54 What is Net Present Value? 03:18 What is the right discount rate? 04:42 How much should you borrow? 05:40 What is the value of being able to change your mind? 06:25 We assume everyone has the same information 07:09 Why companies should be managed in the shareholders' interest 10:57 Contracting theory, how it affects shareholders 12:49 The principal-agent problem 13:42 What is an ideal trade? 15:05 Problems caused by information asymmetry 16:17 Examples of information asymmetry 18:14 Akerlof's paper 'The Market for Lemons' 29:00 Adverse selection and moral hazard 29:28 How to advertise for the next James Bond 33:55 How asymmetric information affects the labour market 38:56 Education makes you more employable 41:42 Should you work hard or 'work smart'? 45:00 Can getting angry help you in business? 47:02 How screening helps you get the information you're missing 48:49 How airlines get you to pay more for business class 50:57 Why banks are reluctant to give out loans 53:15 Who is most hurt by asymmetric information? + conclusion 54:25 Q&A session This lecture was recorded by Raghavendra Rau on 20th May 2024 at LSO, St Luke's Church, London Raghu is the Mercers School Memorial Professor of Business He is also the Sir Evelyn de Rothschild Professor of Finance at Cambridge Judge Business School. The transcript of the lecture is available from the Gresham College website: https://www.gresham.ac.uk/watch-now/asymmetric-information Gresham College has offered free public lectures for over 400 years, thanks to the generosity of our supporters. There are currently over 2,500 lectures free to access. We believe that everyone should have the opportunity to learn from some of the greatest minds. To support Gresham's mission, please consider making a donation: https://gresham.ac.uk/support/ Website: https://gresham.ac.uk Twitter: https://twitter.com/greshamcollege Facebook: https://facebook.com/greshamcollege Instagram: https://instagram.com/greshamcollege