The Problem of Asymmetric Information
There is frequent confusion about the terms asymmetric information, moral hazard and adverse selection? Asymmetric information is the cause, moral hazard and adverse selection are the outcome. This video is great at explaining the connection between asymmetric information and moral hazard. https://www.youtube.com/watch?v=5v7TWKlYoN0&t=32s Your job will be to see what these have to do with hiring a police officer.
Many police officer positions require the applicant to have a college degree even though the tasks of a police officer rarely call upon college course material. Why don’t police departments increase their applicant pool by dropping this requirement? As you answer this question think back to last week and the problem of Type 1 and 2 errors and the human tendency to be risk-averse.
PLEASE DO NOT RELY ON WIKIPEDIA, INVESTOPEDIA OR ANY OTHER PEDIA AS A REFERENCE AT ANYTIME IN THIS COURSE.
FOR THE MAXIMUM POSSIBLE CREDIT OF 20 POINTS, YOU MUST COMPLETE ONE POST AND ONE FOLLOW-UP/REPLY. MAKE SURE BOTH THE POST AND REPLY FOCUS ON THE QUESTIONS ASKED.