Why Well-Intentioned Financial Regulations Often Trigger Disastrous Unintended Consequences
In short: Raghavendra Rau examines how information imbalances in markets create dangerous risks. This lecture explains why interventions designed to fix these issues sometimes backfire, potentially fueling financial crises.
Information asymmetry occurs when one party in a transaction possesses more or better knowledge than the other. This imbalance frequently leads to two primary economic problems: adverse selection and moral hazard. These phenomena are particularly prevalent within insurance and credit markets, where the gap in information can distort decision-making and risk assessment.
The lecture, recorded on 20th January 2025 at Barnard's Inn Hall, London, investigates how regulatory attempts to mitigate these risks can inadvertently worsen them. By failing to account for the complexities of market behavior, such policies may create new vulnerabilities, occasionally resulting in significant financial instability or systemic disasters.
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Sources
- Summary by Intellect · source: The Hidden Risks of "I Know Something You Don't" - Raghavendra Rau
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