Difference between Asymmetric Information and Moral Hazard

A short topic video on two aspects of information failures in markets

Asymmetric information

1. Landlords who know more about their properties than tenants
2. Mortgages: A borrower knows more about their ability to repay a loan than the lender, insufficient checks might be made
3. Car insurance companies cannot tell the risks associated with selling premiums to each single driver – they have to pool risks
4. Some students have superior knowledge about how to get into the elite / best universities including which prior courses to take
5. Doctors have superior knowledge about drugs and treatments 
6. A used-car seller knows more about vehicle quality than a buyer
7. Information advantages for high-frequency stock market traders

Moral Hazard

• When the party with superior information alters his/her behaviour in such a way that benefits himself while imposing costs on those with inferior information
• Moral hazard occurs when insured consumers are likely to take greater risks, knowing that a claim will be paid for by their cover
• The consumer knows more about his/her intended actions than the producer (insurer)