{"version":"1.0.0","segments":[{"startTime":5.425,"endTime":9.906,"body":"So this year I've been giving a series of lectures on the big ideas of"},{"startTime":9.906,"endTime":10.205,"body":"finance."},{"startTime":10.945,"endTime":13.045,"body":"And so this is the fifth in that series."},{"startTime":13.625,"endTime":18.325,"body":"And as a little bit of plugging here, all the ideas are in my textbook."},{"startTime":18.425,"endTime":20.685,"body":"So this is 180 page textbook."},{"startTime":20.795,"endTime":23.685,"body":"This is chapter six in that particular textbook."},{"startTime":24.385,"endTime":27.045,"body":"Anyway, so what are these six basic ideas of finance?"},{"startTime":27.355,"endTime":29.725,"body":"What have we covered so far and what are we going?"},{"startTime":30.825,"endTime":35.741,"body":"The first basic idea of finance was that of net present value off the six"},{"startTime":35.741,"endTime":36.725,"body":"ideas of finance."},{"startTime":37.115,"endTime":41.628,"body":"It's the only idea we did not win a Nobel Prize, mainly because the idea"},{"startTime":41.628,"endTime":46.142,"body":"is so obvious that nobody could take credit for saying, okay, I came up with"},{"startTime":46.142,"endTime":47.045,"body":"that particular idea."},{"startTime":48.105,"endTime":53.622,"body":"But the second idea of finance portfolio theory and the capital asset pricing model did"},{"startTime":53.622,"endTime":58.405,"body":"get a Nobel Prize for its originators, markowitz and sharp back in 1990."},{"startTime":59.065,"endTime":63.878,"body":"The third idea of finance was that of capital structure theory, and two people got"},{"startTime":63.878,"endTime":66.445,"body":"a Nobel Prize, Molan and Miller for those."},{"startTime":66.595,"endTime":71.429,"body":"That idea last time we covered the idea of option pricing and S sch and"},{"startTime":71.429,"endTime":73.685,"body":"Merton got a Nobel prize for that."},{"startTime":74.655,"endTime":80.96,"body":"Today we are going to the fifth idea that of Asymetic information and three people,"},{"startTime":80.96,"endTime":86.845,"body":"alof Stinson STIGs shared the Nobel Prize for that in 2001 in early June."},{"startTime":87.135,"endTime":91.485,"body":"We'll have final lecture in the series on market efficiency, and lots of people have"},{"startTime":91.485,"endTime":92.645,"body":"Nobel prizes for that."},{"startTime":92.905,"endTime":96.758,"body":"And what we'll see next time is all of them disagree with each other, and"},{"startTime":96.758,"endTime":100.611,"body":"many of them got the Nobel Prize in the same year for saying two completely"},{"startTime":100.611,"endTime":101.125,"body":"opposite things."},{"startTime":101.755,"endTime":107.093,"body":"Well, you know, that's why the Nobel Prize in economics is kind of like more"},{"startTime":107.093,"endTime":107.805,"body":"storytelling competition."},{"startTime":108.145,"endTime":111.365,"body":"We are not really, we are not a science, but we tell good stories."},{"startTime":112.595,"endTime":117.805,"body":"Okay, so what is the concept behind all these ideas?"},{"startTime":118.395,"endTime":120.685,"body":"There's only one concept in finance, right?"},{"startTime":120.745,"endTime":123.725,"body":"It is about what is the value of a promise."},{"startTime":124.315,"endTime":127.165,"body":"Essentially, everything in finance comes back to this."},{"startTime":127.555,"endTime":132.637,"body":"Some person comes to you and says, I'm going to give you a huge sum"},{"startTime":132.637,"endTime":136.365,"body":"of money in the future, in return for your investment today."},{"startTime":136.385,"endTime":139.801,"body":"So you give me money today and I will give you money at some point"},{"startTime":139.801,"endTime":140.485,"body":"in the future."},{"startTime":141.345,"endTime":146.463,"body":"And everything in finance consists of trying to figure out what are these promises worth,"},{"startTime":146.463,"endTime":146.805,"body":"right?"},{"startTime":147.585,"endTime":151.045,"body":"So the first idea of net present value was simple."},{"startTime":151.665,"endTime":155.944,"body":"The idea is that promise is coming to you five years from now, 10 years"},{"startTime":155.944,"endTime":160.223,"body":"from now, they're giving you that sum of money then, but you are being asked"},{"startTime":160.223,"endTime":161.365,"body":"to spend money today."},{"startTime":161.625,"endTime":162.365,"body":"Is it worth it?"},{"startTime":162.425,"endTime":167.525,"body":"How do you compare a sum of money five years from now, but a pound"},{"startTime":167.525,"endTime":169.565,"body":"amount or a dollar amount today?"},{"startTime":170.025,"endTime":171.325,"body":"That's the first question."},{"startTime":171.865,"endTime":173.925,"body":"And the formula is pretty straightforward."},{"startTime":174.235,"endTime":178.147,"body":"What you do is you take the cash flows, which come from any investment, and"},{"startTime":178.147,"endTime":182.06,"body":"take the present value of the cash flows today and compare it to the amount"},{"startTime":182.06,"endTime":183.365,"body":"you're spending on it today."},{"startTime":183.715,"endTime":185.845,"body":"Very straightforward, very simple idea."},{"startTime":186.025,"endTime":189.045,"body":"And the rule is give invest in something."},{"startTime":189.045,"endTime":192.514,"body":"Only if you get back more than you invest, if you get back less than"},{"startTime":192.514,"endTime":194.365,"body":"what you invest, you'd be just burning money."},{"startTime":194.435,"endTime":197.485,"body":"There's no, no, there's no reason you should do that."},{"startTime":198.065,"endTime":200.805,"body":"But the problem here is you need an interest rate."},{"startTime":201.385,"endTime":203.285,"body":"So that was the second big idea of finance."},{"startTime":203.815,"endTime":205.805,"body":"Where do we get that interest rate from?"},{"startTime":206.865,"endTime":212.393,"body":"And so the idea here is someone is coming to you and asking you for"},{"startTime":212.393,"endTime":214.605,"body":"this to invest in their company."},{"startTime":215.385,"endTime":219.598,"body":"And the question you have for them is, well, if I don't invest in your"},{"startTime":219.598,"endTime":221.565,"body":"company, where can I put my money?"},{"startTime":221.655,"endTime":225.565,"body":"Where is the next best opportunity that I can put my money in?"},{"startTime":225.745,"endTime":230.62,"body":"So in other words, you're trying to figure out what is the opportunity cost of"},{"startTime":230.62,"endTime":232.245,"body":"investing in this particular investment."},{"startTime":232.745,"endTime":236.96,"body":"If you give up returns on something else because you put your money, locked it"},{"startTime":236.96,"endTime":238.365,"body":"up in this particular investment."},{"startTime":240.065,"endTime":245.071,"body":"Now, what Markowitz and Sharp said was the opportunity should have the same level of"},{"startTime":245.071,"endTime":245.405,"body":"risk."},{"startTime":246.265,"endTime":251.752,"body":"And they, because they went through a whole bunch of statistical formula to show that"},{"startTime":251.752,"endTime":255.045,"body":"every rational person should invest in the market portfolio."},{"startTime":255.105,"endTime":259.987,"body":"So a combination of a risk-free asset, a government bond, and the entire market, never"},{"startTime":259.987,"endTime":260.964,"body":"an individual stock."},{"startTime":261.745,"endTime":265.912,"body":"So that means if you're now looking at risk, I'm taking your stock, I'm adding"},{"startTime":265.912,"endTime":269.525,"body":"it to my market portfolio, what's the core variance with the market portfolio?"},{"startTime":269.825,"endTime":272.605,"body":"You standardize that core variance, and that's called the beta."},{"startTime":272.745,"endTime":277.282,"body":"And the capital Asset Pricing model just said the discount rate is the risk-free rate"},{"startTime":277.282,"endTime":280.005,"body":"plus the beta times, something called the marketer's premium."},{"startTime":280.185,"endTime":281.645,"body":"So we covered that last year."},{"startTime":283.185,"endTime":285.765,"body":"The next question was, how much should you borrow?"},{"startTime":286.875,"endTime":290.245,"body":"Well, this is goes to the financing decision of the firm."},{"startTime":290.595,"endTime":292.085,"body":"What should I, should I borrow?"},{"startTime":292.085,"endTime":293.205,"body":"Should I raise equity?"},{"startTime":293.235,"endTime":293.965,"body":"What should I do?"},{"startTime":294.025,"endTime":297.531,"body":"How should I get the money from these people who want to invest in my"},{"startTime":297.531,"endTime":297.765,"body":"company?"},{"startTime":298.905,"endTime":304.182,"body":"And Ian Miller got a Nobel Prize for showing in a perfect world with no"},{"startTime":304.182,"endTime":306.645,"body":"taxes, no lawyers, no government for them."},{"startTime":306.645,"endTime":307.765,"body":"That is a perfect world."},{"startTime":307.985,"endTime":310.005,"body":"The University of Chicago economists."},{"startTime":310.505,"endTime":313.245,"body":"And so it doesn't matter, debt doesn't matter."},{"startTime":313.305,"endTime":314.325,"body":"Equity doesn't matter."},{"startTime":314.555,"endTime":315.525,"body":"It's the same thing."},{"startTime":315.845,"endTime":319.965,"body":"Regardless, in a world with taxes, you should borrow as much as we can."},{"startTime":320.425,"endTime":323.045,"body":"But in reality, we know the firms don't borrow as much as they can."},{"startTime":323.545,"endTime":328.997,"body":"So the idea was if you have a world with taxes, with lawyers, with governments"},{"startTime":328.997,"endTime":334.45,"body":"from balances, benefits of debt they get from taking, from reducing the taxes they pay"},{"startTime":334.45,"endTime":338.085,"body":"with the financial distress cost of taking too much debt."},{"startTime":338.185,"endTime":339.925,"body":"And there's an optimal capital structure."},{"startTime":340.705,"endTime":344.869,"body":"The fourth idea, which we talked about last time in February, is, is about what"},{"startTime":344.869,"endTime":347.645,"body":"is the value of being able to change your mind?"},{"startTime":348.305,"endTime":351.685,"body":"So these are what we call contingent investments."},{"startTime":351.995,"endTime":357.465,"body":"What that means is I'll give you some money in return for your promise, right?"},{"startTime":357.465,"endTime":362.377,"body":"So you're promising to pay me some money and I'll give you some money today,"},{"startTime":362.377,"endTime":367.29,"body":"but if I give you the money, can I change my mind after giving you"},{"startTime":367.29,"endTime":367.945,"body":"the money?"},{"startTime":368.245,"endTime":371.585,"body":"Is there something in the contract that allows me to get the money back if"},{"startTime":371.585,"endTime":373.145,"body":"I find out something new about you?"},{"startTime":373.805,"endTime":376.385,"body":"That's an option, right?"},{"startTime":376.685,"endTime":381.242,"body":"And so these things are how, what is the value of that ability to change"},{"startTime":381.242,"endTime":383.065,"body":"your mind after making an investment?"},{"startTime":383.325,"endTime":384.105,"body":"That's an option."},{"startTime":385.005,"endTime":389.025,"body":"But all these four ideas have one common assumption, right?"},{"startTime":389.375,"endTime":395.585,"body":"That common assumption is everyone has the same information, right?"},{"startTime":397.255,"endTime":399.705,"body":"Well, I actually, I misspoke a little."},{"startTime":399.975,"endTime":404.885,"body":"It's like, you know, Monty Python and the Spanish in acquisition, there are actually two"},{"startTime":404.885,"endTime":407.505,"body":"common idea assumptions behind all these ideas, right?"},{"startTime":407.685,"endTime":409.705,"body":"One is, of course everyone has the same information."},{"startTime":410.005,"endTime":414.465,"body":"And the second is everyone analyzes the information in the same way."},{"startTime":415.565,"endTime":422.097,"body":"Now, the second one I'm gonna talk about next time, this time I'm gonna talk"},{"startTime":422.097,"endTime":428.629,"body":"about what happens if not everybody has the same level of information, basically asymmetric information,"},{"startTime":428.629,"endTime":429.065,"body":"okay?"},{"startTime":429.645,"endTime":434.985,"body":"So let's start with the question which I asked back in my first class, right?"},{"startTime":435.405,"endTime":439.44,"body":"So when we had my first lecture, I said, in whose interest do you think"},{"startTime":439.44,"endTime":440.785,"body":"a firm should be managed?"},{"startTime":442.405,"endTime":445.105,"body":"And there were a huge number of answers."},{"startTime":445.245,"endTime":452.061,"body":"You could be workers, you could be creditors, suppliers, managers, customers, debt holders, shareholders, all"},{"startTime":452.061,"endTime":453.425,"body":"of the above."},{"startTime":454.205,"endTime":457.185,"body":"And I'd like to ask you what you think."},{"startTime":457.325,"endTime":461.825,"body":"So if you have your phone, you can use that QR code to tell me"},{"startTime":461.825,"endTime":466.325,"body":"what you think is in whose interest do you think the firm should be managed,"},{"startTime":466.325,"endTime":466.625,"body":"right?"},{"startTime":467.265,"endTime":472.825,"body":"Customers, workers, creditors, suppliers, shareholders, society, all of the above."},{"startTime":483.975,"endTime":484.255,"body":"Excellent."},{"startTime":484.875,"endTime":489.415,"body":"We see a significant number of people saying all of the above, but also a"},{"startTime":489.415,"endTime":491.535,"body":"significant number of people saying shareholders only."},{"startTime":492.595,"endTime":497.8,"body":"Now this is interesting because when I first gave this uh, lecture back last year,"},{"startTime":497.8,"endTime":499.535,"body":"almost nobody said shareholders only."},{"startTime":499.555,"endTime":502.498,"body":"So I see that quite a few people are actually paying attention to what I"},{"startTime":502.498,"endTime":502.695,"body":"said."},{"startTime":503.515,"endTime":508.926,"body":"So in reality, the answer for a finance person, for for a person who thinks"},{"startTime":508.926,"endTime":512.174,"body":"in the finance way, it should be shareholders alone."},{"startTime":512.914,"endTime":514.294,"body":"Now, why shareholders alone?"},{"startTime":516.105,"endTime":519.325,"body":"The answer actually goes back to Milton Friedman."},{"startTime":519.784,"endTime":523.405,"body":"Milton Friedman wrote a very influential article in 1970."},{"startTime":523.825,"endTime":525.245,"body":"It was published in the New York Times."},{"startTime":525.785,"endTime":531.77,"body":"And in that article, he said, the primary responsibility of a business is to maximize"},{"startTime":531.77,"endTime":534.165,"body":"its profits, not about social responsibility."},{"startTime":534.355,"endTime":539.125,"body":"It's not about responsibility to society, it's about just maximizing profits."},{"startTime":539.745,"endTime":541.885,"body":"And then he was asked, you know, what about society?"},{"startTime":541.885,"endTime":542.885,"body":"What about everybody else?"},{"startTime":543.475,"endTime":548.065,"body":"Well, he says in the article, he says, the key part is the executive is"},{"startTime":548.065,"endTime":551.125,"body":"an employee of the owners of the business, the shareholders."},{"startTime":551.305,"endTime":553.685,"body":"So he's supposed to do whatever the shareholders want."},{"startTime":554.345,"endTime":558.939,"body":"But you didn't answer the question of why are the owners of the business shareholders,"},{"startTime":558.939,"endTime":560.165,"body":"why not the workers?"},{"startTime":560.475,"endTime":561.525,"body":"They work for the company."},{"startTime":561.985,"endTime":563.725,"body":"So why don't they own the company?"},{"startTime":564.715,"endTime":570.935,"body":"Well, if you think about it, one interesting answer is you have to focus on"},{"startTime":570.935,"endTime":571.765,"body":"one group."},{"startTime":572.275,"endTime":577.153,"body":"What Friedman says is, if you have a question that says, run the forum in"},{"startTime":577.153,"endTime":580.405,"body":"the interests of everybody, what's the manager going to do?"},{"startTime":580.795,"endTime":585.921,"body":"Because the manager has information about everybody else, but they don't have information on what"},{"startTime":585.921,"endTime":586.605,"body":"he's doing."},{"startTime":587.035,"endTime":591.39,"body":"What he's going to end up doing is basically treating off groups of people against"},{"startTime":591.39,"endTime":595.165,"body":"each other and putting the rest of the money in his own pocket."},{"startTime":595.825,"endTime":600.147,"body":"So for example, if the workers want a bonus, he's going to pretend to the"},{"startTime":600.147,"endTime":603.605,"body":"workers that maybe the bond holders are after him to pay interest."},{"startTime":603.985,"endTime":607.735,"body":"So I can't pay you interest because I have to pay the, uh, I have"},{"startTime":607.735,"endTime":611.485,"body":"to pay the workers, I have to pay, I tell the workers I have to"},{"startTime":611.485,"endTime":612.485,"body":"pay the bond holder."},{"startTime":612.625,"endTime":616.096,"body":"So I trade everybody off, end up with a big sum of money, and I"},{"startTime":616.096,"endTime":617.485,"body":"pay myself a big bonus, right?"},{"startTime":617.865,"endTime":619.165,"body":"So that's the point here."},{"startTime":619.185,"endTime":620.525,"body":"You have to focus on one group."},{"startTime":620.985,"endTime":622.125,"body":"And why shareholders?"},{"startTime":622.385,"endTime":623.085,"body":"The answer's simple."},{"startTime":623.715,"endTime":625.685,"body":"Well, they get paid after everybody else."},{"startTime":625.875,"endTime":627.685,"body":"They are the last to be paid."},{"startTime":628.105,"endTime":633.093,"body":"So in other words, if you make, for example, the workers unhappy, they don't work"},{"startTime":633.093,"endTime":637.085,"body":"hard for you and you end up with a lower share price."},{"startTime":637.385,"endTime":641.06,"body":"If you treat your suppliers badly, they don't give you good products, you end up"},{"startTime":641.06,"endTime":642.285,"body":"with a lower share price."},{"startTime":642.345,"endTime":646.781,"body":"The key is the shareholders are paid at the end, and this is an easy"},{"startTime":646.781,"endTime":647.965,"body":"number to focus on."},{"startTime":648.145,"endTime":649.045,"body":"The share price, right?"},{"startTime":649.045,"endTime":649.645,"body":"It's just one number."},{"startTime":649.665,"endTime":654.221,"body":"Number goes up, you've done a good job, number goes down, you've done a terrible"},{"startTime":654.221,"endTime":654.525,"body":"job."},{"startTime":654.705,"endTime":656.405,"body":"That's pretty much it, right?"},{"startTime":656.675,"endTime":657.205,"body":"Dead easy."},{"startTime":657.585,"endTime":658.965,"body":"But that's not the whole story."},{"startTime":659.705,"endTime":665.498,"body":"The second part of the story comes into what is contractable and what is not"},{"startTime":665.498,"endTime":665.885,"body":"Contractable?"},{"startTime":666.475,"endTime":667.205,"body":"What does that mean?"},{"startTime":667.525,"endTime":667.965,"body":"Contractable?"},{"startTime":668.595,"endTime":671.965,"body":"Well, think about yourself working for a company."},{"startTime":672.905,"endTime":674.405,"body":"You have an employment contract."},{"startTime":674.945,"endTime":681.085,"body":"The contract tells you your compensation, your pension, severance, pay, performance targets."},{"startTime":681.085,"endTime":682.325,"body":"You have an option to resign."},{"startTime":683.025,"endTime":687.9,"body":"And if your employer violates the terms of your contract, you can sue him in"},{"startTime":687.9,"endTime":689.525,"body":"a court of law, right?"},{"startTime":689.955,"endTime":691.965,"body":"Similarly, same thing for customers."},{"startTime":691.965,"endTime":692.885,"body":"They have warranties."},{"startTime":693.435,"endTime":694.485,"body":"Same thing with bond holders."},{"startTime":694.485,"endTime":697.165,"body":"They have an enormous number of protections."},{"startTime":698.195,"endTime":699.405,"body":"Same thing for suppliers."},{"startTime":700.275,"endTime":701.285,"body":"What about shareholders?"},{"startTime":702.335,"endTime":703.505,"body":"They don't have any."},{"startTime":703.685,"endTime":705.545,"body":"For example, think about the dividends."},{"startTime":705.645,"endTime":707.545,"body":"Do they have a right to being paid dividends?"},{"startTime":708.525,"endTime":708.745,"body":"No."},{"startTime":708.915,"endTime":709.265,"body":"Right?"},{"startTime":709.405,"endTime":711.385,"body":"The company doesn't have to pay your dividends."},{"startTime":711.525,"endTime":715.863,"body":"So they, they have no rights except they have voting rights and they have the"},{"startTime":715.863,"endTime":719.045,"body":"right to whatever is left over when the firm goes bankrupt."},{"startTime":719.105,"endTime":721.245,"body":"That's literally only rights they have."},{"startTime":721.745,"endTime":727.19,"body":"So going back to what we just said, there's one more thing here, is that"},{"startTime":727.19,"endTime":729.005,"body":"shareholders have no explicit protection."},{"startTime":729.345,"endTime":735.362,"body":"And because of that, they are most vulnerable to the idea that managers know more"},{"startTime":735.362,"endTime":736.165,"body":"than them."},{"startTime":736.465,"endTime":739.845,"body":"If you're a worker and the manager knows more than you, it doesn't matter."},{"startTime":740.225,"endTime":740.445,"body":"Why?"},{"startTime":740.445,"endTime":741.885,"body":"Because you are protected."},{"startTime":742.025,"endTime":746.019,"body":"You have a compensation contract As a bond holder, are you worried that the manager"},{"startTime":746.019,"endTime":747.085,"body":"knows more than you?"},{"startTime":747.335,"endTime":751.805,"body":"Again, no, because you know exactly what you're gonna get as a shareholder."},{"startTime":752.065,"endTime":752.805,"body":"That's not true."},{"startTime":753.445,"endTime":759.67,"body":"Asymetic information is crucially important for a shareholder, not so much for the other stakeholders,"},{"startTime":759.67,"endTime":763.405,"body":"because the other stakeholders are protected by explicit contracts."},{"startTime":763.945,"endTime":769.045,"body":"So that means that asymetic information is a very big, uh, problem."},{"startTime":769.545,"endTime":776.245,"body":"And this is a class of problems in economics called principle agent problems, right?"},{"startTime":776.465,"endTime":778.365,"body":"So what are principle agent problems?"},{"startTime":779.195,"endTime":783.705,"body":"Well, a principle is someone who needs something done, right?"},{"startTime":783.855,"endTime":787.185,"body":"Someone who wants somebody else to carry out a job for him."},{"startTime":787.375,"endTime":790.105,"body":"That second person is called the principal agent."},{"startTime":790.765,"endTime":796.515,"body":"And so the principal can use a mixture of explicit or implicit contracts con to"},{"startTime":796.515,"endTime":797.665,"body":"control the agent."},{"startTime":798.485,"endTime":803.362,"body":"So for example, if you think about, um, you taking your car to a mechanic,"},{"startTime":803.362,"endTime":807.265,"body":"if you take your car to a mechanic, you are the principal."},{"startTime":807.405,"endTime":809.265,"body":"The mechanic is the agent, right?"},{"startTime":809.365,"endTime":813.585,"body":"You have your house painted, you are the principal, the house painter is the agent."},{"startTime":813.805,"endTime":817.952,"body":"So the person doing the work is the agent, the principal is the person hiring"},{"startTime":817.952,"endTime":818.505,"body":"the agent."},{"startTime":820.765,"endTime":826.635,"body":"So now let's take a word where there is no asymmetric information."},{"startTime":826.785,"endTime":830.945,"body":"Everybody has the same level of information, okay?"},{"startTime":831.405,"endTime":834.065,"body":"In this symmetric world, how does trade happen?"},{"startTime":835.195,"endTime":840.497,"body":"Let's say for example, I am a seller and I want to sell, maybe this,"},{"startTime":840.497,"endTime":842.265,"body":"it's a pretty warm day."},{"startTime":842.405,"endTime":844.225,"body":"So I want to sell a glass of water."},{"startTime":847.065,"endTime":851.265,"body":"I might say my willingness to accept the minimum price, I'll charge for this inexpensive"},{"startTime":851.265,"endTime":853.505,"body":"glass of water, but it'll be five pounds."},{"startTime":854.685,"endTime":856.225,"body":"So will the trade happen?"},{"startTime":856.525,"endTime":861.821,"body":"The trade will only happen if the buyer is willing to pay more than five"},{"startTime":861.821,"endTime":862.175,"body":"pounds."},{"startTime":862.435,"endTime":864.175,"body":"That's so called the willingness to pay."},{"startTime":864.275,"endTime":865.815,"body":"That's called the willingness to accept."},{"startTime":866.155,"endTime":870.22,"body":"And the condition for a good trade is the willingness to pay must be bigger"},{"startTime":870.22,"endTime":871.575,"body":"than the willingness to accept."},{"startTime":871.875,"endTime":874.935,"body":"So if that happens, the trade is okay."},{"startTime":875.195,"endTime":877.255,"body":"If it doesn't happen, no trade is gonna happen."},{"startTime":877.435,"endTime":881.726,"body":"If I'm charging five pounds for that glass of water, but nobody's willing to pay"},{"startTime":881.726,"endTime":884.015,"body":"five pounds, no trade is gonna happen, right?"},{"startTime":884.515,"endTime":888.975,"body":"And economists call that difference between the two, the economic surplus."},{"startTime":889.195,"endTime":891.845,"body":"And what they say is there is an efficient trade."},{"startTime":891.915,"endTime":896.771,"body":"When you maximize the value of that surplus, you're transferring an item from somebody who"},{"startTime":896.771,"endTime":899.685,"body":"values it less to somebody who values it more."},{"startTime":899.945,"endTime":902.085,"body":"That's what we mean by efficiency."},{"startTime":902.995,"endTime":904.245,"body":"Okay, fine."},{"startTime":904.995,"endTime":909.365,"body":"Unfortunately, asymetic information complicates everything."},{"startTime":910.235,"endTime":910.965,"body":"What does it do?"},{"startTime":910.985,"endTime":912.405,"body":"For example, right?"},{"startTime":912.945,"endTime":917.987,"body":"The key point here is one group of people, either the buyer or the seller"},{"startTime":917.987,"endTime":921.685,"body":"has more information than the person on the other side, okay?"},{"startTime":922.865,"endTime":924.565,"body":"So that's the area of asymmetric."},{"startTime":924.585,"endTime":929.478,"body":"And problems arise when you don't know enough and you know less than the other"},{"startTime":929.478,"endTime":929.805,"body":"person."},{"startTime":931.355,"endTime":932.205,"body":"What are the problems?"},{"startTime":932.715,"endTime":936.765,"body":"Well, problem number one, maybe the market outcome is distorted."},{"startTime":937.005,"endTime":941.085,"body":"I know more than you, so I'm able to manipulate the terms of trade."},{"startTime":941.105,"endTime":942.885,"body":"So I end up better off than you are."},{"startTime":943.145,"endTime":944.125,"body":"Or maybe you can do that."},{"startTime":944.745,"endTime":949.125,"body":"One of the two sides will divert the economic surplus towards them."},{"startTime":950.825,"endTime":956.185,"body":"The other possibility is, the worst case scenario is that the trade breaks down completely,"},{"startTime":956.185,"endTime":959.045,"body":"regardless of there's a good trade or not."},{"startTime":959.645,"endTime":962.325,"body":"I cannot convince you that this is a good trade."},{"startTime":963.045,"endTime":967.438,"body":"I will think the other person is ripping me off and I will never enter"},{"startTime":967.438,"endTime":971.832,"body":"into a trade with him, even if that person actually is telling the truth, the"},{"startTime":971.832,"endTime":972.125,"body":"trust."},{"startTime":972.125,"endTime":973.685,"body":"There's no trust in this scenario."},{"startTime":973.785,"endTime":975.525,"body":"That's the worst case scenario."},{"startTime":977.345,"endTime":979.965,"body":"So when does this information asymmetry happen?"},{"startTime":980.695,"endTime":981.925,"body":"Let's take some examples."},{"startTime":982.495,"endTime":984.445,"body":"Think about a financial market."},{"startTime":985.545,"endTime":987.765,"body":"You have a founder of a startup firm."},{"startTime":988.675,"endTime":993.671,"body":"This founder is trying to sell shares in their company to raise cash for a"},{"startTime":993.671,"endTime":994.005,"body":"project."},{"startTime":994.825,"endTime":997.205,"body":"Now, who knows more about the quality of that project?"},{"startTime":997.795,"endTime":998.885,"body":"It's definitely the founders."},{"startTime":999.585,"endTime":1005.227,"body":"So if the founders are selling shares in the company, that means they were thinking,"},{"startTime":1005.227,"endTime":1007.485,"body":"I'm giving you dollars or pound."},{"startTime":1007.705,"endTime":1011.365,"body":"I'm giving you a share in something for say a hundred pounds."},{"startTime":1011.945,"endTime":1016.503,"body":"Am I going to give you a share in a company which is worth more"},{"startTime":1016.503,"endTime":1021.061,"body":"than a hundred pounds per share, even return for getting a hundred pounds from you,"},{"startTime":1021.061,"endTime":1021.365,"body":"right?"},{"startTime":1021.485,"endTime":1022.965,"body":"I mean, obviously not, right?"},{"startTime":1022.965,"endTime":1027.121,"body":"If I'm, if I'm the manager and if I'm the staff founder, and I know"},{"startTime":1027.121,"endTime":1031.277,"body":"that my company is worth 120 pounds per share, but the market price is a"},{"startTime":1031.277,"endTime":1034.325,"body":"hundred pounds per share, I will never give you the shares."},{"startTime":1034.444,"endTime":1037.564,"body":"I will only give you the shares if I think the market price is a"},{"startTime":1037.564,"endTime":1039.645,"body":"hundred, but I think it's worth less than a hundred."},{"startTime":1039.905,"endTime":1042.005,"body":"So I'm giving you something that's worth more, right?"},{"startTime":1042.714,"endTime":1044.805,"body":"Okay, that's one point here, right?"},{"startTime":1045.545,"endTime":1046.885,"body":"Or let's take another example."},{"startTime":1047.493,"endTime":1048.204,"body":"Labor markets."},{"startTime":1049.625,"endTime":1055.533,"body":"Now, as a worker, if I were to ask any of you, right, are you"},{"startTime":1055.533,"endTime":1058.685,"body":"a good worker or what about you, right?"},{"startTime":1059.065,"endTime":1060.005,"body":"Are you a good student?"},{"startTime":1060.035,"endTime":1060.805,"body":"What would you say?"},{"startTime":1062.895,"endTime":1063.245,"body":"Right?"},{"startTime":1063.465,"endTime":1066.245,"body":"But he would say that even if he was not right."},{"startTime":1066.425,"endTime":1068.445,"body":"That's the idea of asymetic information."},{"startTime":1068.675,"endTime":1071.805,"body":"Everybody, the employer asks you, are you a good student?"},{"startTime":1071.905,"endTime":1072.725,"body":"Are you a good worker?"},{"startTime":1073.265,"endTime":1074.485,"body":"You would say, of course I am."},{"startTime":1074.785,"endTime":1076.125,"body":"I'm passionate about your company."},{"startTime":1076.355,"endTime":1080.805,"body":"Half the time you might be lying, but that's asymetic information, right?"},{"startTime":1081.225,"endTime":1085.845,"body":"So the worker knows really about their abilities, their experience, the work ethic."},{"startTime":1086.065,"endTime":1088.045,"body":"The employer cannot get that information."},{"startTime":1088.265,"endTime":1091.325,"body":"That's another example of information asymmetry."},{"startTime":1091.795,"endTime":1093.365,"body":"Okay, fine."},{"startTime":1093.905,"endTime":1096.045,"body":"So now let's get to George Oloff."},{"startTime":1097.425,"endTime":1103.205,"body":"George Oloff decided to study, which he wrote this paper called The Market for Lemons."},{"startTime":1103.475,"endTime":1106.725,"body":"It's one of the most heavily cited papers in economics."},{"startTime":1107.185,"endTime":1112.101,"body":"And the paper, when it was first submitted, it turns out the paper was rejected"},{"startTime":1112.101,"endTime":1113.085,"body":"by the journal."},{"startTime":1113.345,"endTime":1114.325,"body":"The two referees."},{"startTime":1114.425,"endTime":1116.485,"body":"One referee said, markets don't work like this."},{"startTime":1116.515,"endTime":1117.205,"body":"This is stupid."},{"startTime":1117.625,"endTime":1120.285,"body":"The other guy said, oh, it's obvious that markets work like this."},{"startTime":1120.485,"endTime":1121.885,"body":"I don't need a paper to workable."},{"startTime":1121.915,"endTime":1122.925,"body":"Work it out, right?"},{"startTime":1123.305,"endTime":1124.485,"body":"So the paper rejected."},{"startTime":1124.955,"endTime":1128.925,"body":"Dave Ackoff shopped it around to a few more journals, rejected every single time."},{"startTime":1129.575,"endTime":1133.925,"body":"Eventually, some of his friends convinced the editor of the first journal to come back"},{"startTime":1133.925,"endTime":1136.245,"body":"and publish this journal, uh, publish this article."},{"startTime":1136.505,"endTime":1141.023,"body":"And this article really made that journal is the most heavily cited paper of all"},{"startTime":1141.023,"endTime":1141.325,"body":"time."},{"startTime":1141.945,"endTime":1143.325,"body":"So what is this market about?"},{"startTime":1144.145,"endTime":1148.245,"body":"He basically explored the used car market, right?"},{"startTime":1148.545,"endTime":1151.805,"body":"So the idea is you are in the market for a used car."},{"startTime":1153.115,"endTime":1153.405,"body":"Okay?"},{"startTime":1153.825,"endTime":1157.645,"body":"Now, who has more information about the quality of that car?"},{"startTime":1158.705,"endTime":1159.965,"body":"The buyer or the seller?"},{"startTime":1160.915,"endTime":1164.005,"body":"Obviously the seller, they've been driving it for a few years."},{"startTime":1164.195,"endTime":1165.205,"body":"They know the quality."},{"startTime":1165.825,"endTime":1168.485,"body":"So at this stage, let me ask you a question."},{"startTime":1172.555,"endTime":1177.749,"body":"The seller has a bigger information advantage than the buyer who has an advantage in"},{"startTime":1177.749,"endTime":1179.135,"body":"actually making the trade."},{"startTime":1179.555,"endTime":1184.695,"body":"The person with more information, the seller or the person with less information, the buyer."},{"startTime":1202.305,"endTime":1207.969,"body":"And this is actually why LOV got the Nobel Prize, because the answer is not"},{"startTime":1207.969,"endTime":1208.725,"body":"obvious, right?"},{"startTime":1209.635,"endTime":1213.685,"body":"What he said was, in most things in life, having more is better."},{"startTime":1214.305,"endTime":1216.485,"body":"Bigger house, better than a smaller house, right?"},{"startTime":1216.795,"endTime":1218.125,"body":"More money, better than, less money."},{"startTime":1218.315,"endTime":1218.845,"body":"More children."},{"startTime":1218.945,"endTime":1220.885,"body":"Oh wait, it doesn't hold for children, okay?"},{"startTime":1221.305,"endTime":1222.965,"body":"But almost everything else, right?"},{"startTime":1223.305,"endTime":1228.717,"body":"But he said if you take information, sometimes a person with more information can actually"},{"startTime":1228.717,"endTime":1231.965,"body":"be worse off than a person with less information."},{"startTime":1232.465,"endTime":1233.485,"body":"How is that possible?"},{"startTime":1233.775,"endTime":1234.125,"body":"Right?"},{"startTime":1234.635,"endTime":1236.605,"body":"That insight got him the Nobel."},{"startTime":1236.745,"endTime":1238.925,"body":"So let's take a look at what his insight was."},{"startTime":1240.025,"endTime":1243.514,"body":"So you in the market for a used car, and it turns out there are"},{"startTime":1243.514,"endTime":1244.445,"body":"two types of cars."},{"startTime":1245.025,"endTime":1247.96,"body":"The plums, which are good cars that never break down."},{"startTime":1248.095,"endTime":1250.965,"body":"There are lemons that break down all the time, okay?"},{"startTime":1251.425,"endTime":1258.703,"body":"Now we also know that plums worth 3000 pounds to buyers, and they're worth 2,500"},{"startTime":1258.703,"endTime":1260.645,"body":"pounds to sellers, okay?"},{"startTime":1261.145,"endTime":1261.565,"body":"Lemons."},{"startTime":1261.565,"endTime":1265.507,"body":"In contrast, people would buy lemons soup, but they just won't want to pay the"},{"startTime":1265.507,"endTime":1267.085,"body":"same price as for a plum."},{"startTime":1267.425,"endTime":1268.525,"body":"The plum is 3000."},{"startTime":1268.665,"endTime":1272.181,"body":"The buyer might be willing to pay 2000 for the lemon because they will have"},{"startTime":1272.181,"endTime":1274.525,"body":"to have it fixed up after they buy it, right?"},{"startTime":1274.865,"endTime":1278.885,"body":"But the seller values the lemon at 1500 pounds, okay?"},{"startTime":1279.105,"endTime":1281.325,"body":"So that's what we have market."},{"startTime":1282.185,"endTime":1286.976,"body":"And I'm gonna assume there are more buyers and sellers, and I'm going to assume"},{"startTime":1286.976,"endTime":1291.768,"body":"because of that, lots of buyers, very few sellers, I'm gonna assume that all the"},{"startTime":1291.768,"endTime":1293.685,"body":"bargaining power is with the sellers."},{"startTime":1294.395,"endTime":1294.685,"body":"Okay?"},{"startTime":1294.685,"endTime":1295.565,"body":"So I'm giving them everything."},{"startTime":1295.635,"endTime":1296.845,"body":"I've given them more information."},{"startTime":1296.915,"endTime":1298.205,"body":"I've given them more bargaining power."},{"startTime":1298.275,"endTime":1300.205,"body":"They seem to have all the advantages."},{"startTime":1300.995,"endTime":1301.285,"body":"Okay?"},{"startTime":1301.945,"endTime":1302.165,"body":"So"},{"startTime":1304.775,"endTime":1308.725,"body":"First question is, do these trades make sense from an economic perspective?"},{"startTime":1309.255,"endTime":1309.605,"body":"Right?"},{"startTime":1309.955,"endTime":1312.365,"body":"Well, the problem is worth 3000 to the buyer."},{"startTime":1313.145,"endTime":1316.965,"body":"2,500 to the seller, that means the seller is willing to sell for 2,500."},{"startTime":1317.305,"endTime":1319.485,"body":"The buyer is willing to buy for 3000."},{"startTime":1319.785,"endTime":1320.405,"body":"It makes sense."},{"startTime":1320.945,"endTime":1322.765,"body":"The economic surplus is positive."},{"startTime":1322.765,"endTime":1323.605,"body":"500 pounds."},{"startTime":1324.395,"endTime":1325.445,"body":"Same thing with a lemon."},{"startTime":1325.985,"endTime":1327.045,"body":"2000 is the price."},{"startTime":1327.145,"endTime":1329.365,"body":"The sellers are, the buyers are willing to pay."},{"startTime":1329.505,"endTime":1331.845,"body":"The seller's willing to accept 1,500."},{"startTime":1332.055,"endTime":1334.325,"body":"Again, positive economic surplus."},{"startTime":1334.345,"endTime":1335.445,"body":"So these are good traits."},{"startTime":1336.105,"endTime":1340.885,"body":"So let's start with the first question, which is in the case of symmetric information."},{"startTime":1342.045,"endTime":1345.445,"body":"Question here is, you walk in there, there's no asymmetric information."},{"startTime":1345.465,"endTime":1348.165,"body":"You walk in, you look at the car and say, oh, that's a plum, that's"},{"startTime":1348.165,"endTime":1348.525,"body":"a lemon."},{"startTime":1348.555,"endTime":1351.045,"body":"Instantly, it's obvious to everybody, okay?"},{"startTime":1351.155,"endTime":1354.245,"body":"Everybody has the same information in this question."},{"startTime":1354.585,"endTime":1358.685,"body":"In this case, what price would the cars go for?"},{"startTime":1359.185,"endTime":1360.685,"body":"So let me ask you this."},{"startTime":1364.425,"endTime":1368.405,"body":"So if you take the plum alone, what price would they go for?"},{"startTime":1373.405,"endTime":1375.555,"body":"3000 is the buyer's valuation of plum."},{"startTime":1375.695,"endTime":1378.515,"body":"2,500 is the seller's valuation of plum."},{"startTime":1378.705,"endTime":1379.835,"body":"This is between the two."},{"startTime":1379.975,"endTime":1383.795,"body":"That's the buyer's valuation of the lemon seller's valuation of the lemon."},{"startTime":1396.025,"endTime":1396.605,"body":"And the answer"},{"startTime":1398.945,"endTime":1400.925,"body":"Is indeed, 3000 pounds."},{"startTime":1401.305,"endTime":1402.365,"body":"Why 3000 pounds?"},{"startTime":1402.435,"endTime":1406.765,"body":"Because of the assumption I made that there are many more buyers and sellers."},{"startTime":1406.945,"endTime":1410.085,"body":"So if you offer less than 3000, what's gonna happen?"},{"startTime":1410.345,"endTime":1412.285,"body":"The seller's going to say, Hey, I'll wait for somebody else."},{"startTime":1412.505,"endTime":1417.405,"body":"I'm not gonna sell to you I 2,500, even though everybody knows it's worth 2,500."},{"startTime":1417.625,"endTime":1421.085,"body":"But there are so many buyers, so few sellers, the seller's not gonna sell."},{"startTime":1421.265,"endTime":1422.605,"body":"So the price is 3000."},{"startTime":1422.995,"endTime":1424.405,"body":"Alright, fine."},{"startTime":1425.505,"endTime":1428.085,"body":"Now let's introduce Asymetic information."},{"startTime":1428.885,"endTime":1429.965,"body":"Asymetic information."},{"startTime":1430.445,"endTime":1433.045,"body":"I don't know whether this is a plum or a lemon."},{"startTime":1433.785,"endTime":1439.275,"body":"All I know is based on the past, there's a, there is a 70% chance"},{"startTime":1439.275,"endTime":1444.765,"body":"this car is a lemon and a 30% chance that this car is a plum."},{"startTime":1445.985,"endTime":1446.275,"body":"Okay?"},{"startTime":1446.275,"endTime":1451.155,"body":"That's all I know based on statistics, based on history, based on MOT tests, whatever."},{"startTime":1452.135,"endTime":1453.315,"body":"But I don't know about this one."},{"startTime":1453.335,"endTime":1456.035,"body":"The seller knows a hundred percent whether this is a plum or a lemon."},{"startTime":1456.615,"endTime":1462.515,"body":"So the question is, what price will you put on the car as a buyer?"},{"startTime":1462.935,"endTime":1463.955,"body":"So let's go back."},{"startTime":1471.565,"endTime":1474.505,"body":"You can use the scale, draw the thing cross."},{"startTime":1489.245,"endTime":1489.565,"body":"Excellent."},{"startTime":1489.985,"endTime":1494.725,"body":"The correct price should only be 2000, never more than 2000."},{"startTime":1495.185,"endTime":1495.965,"body":"Why 2000?"},{"startTime":1496.115,"endTime":1498.205,"body":"Well, let's go back to the question, right?"},{"startTime":1498.465,"endTime":1502.365,"body":"The plum is worth 3000 pounds for buyers, 2,500 for sellers."},{"startTime":1502.625,"endTime":1504.925,"body":"But that's 70% of the cars are lemons."},{"startTime":1505.145,"endTime":1506.645,"body":"And you know, this is a buyer."},{"startTime":1506.985,"endTime":1508.525,"body":"So what price do you bid?"},{"startTime":1508.865,"endTime":1520.177,"body":"The rational price to bid is 70% of the lemon price times 2000, plus 30%"},{"startTime":1520.177,"endTime":1526.965,"body":"of the plum price, which is 2300 pounds, right?"},{"startTime":1527.385,"endTime":1531.485,"body":"The problem is the moment you bid 2300, will the plum seller sell?"},{"startTime":1533.715,"endTime":1533.935,"body":"No."},{"startTime":1533.935,"endTime":1534.135,"body":"Right?"},{"startTime":1534.195,"endTime":1536.095,"body":"The plum is worth 2,500 to them."},{"startTime":1536.355,"endTime":1538.335,"body":"So they're not gonna sell for 2300."},{"startTime":1538.605,"endTime":1543.246,"body":"That means that if you, if you bid the rational price 2300, you will never"},{"startTime":1543.246,"endTime":1544.175,"body":"get a plumb."},{"startTime":1544.315,"endTime":1546.295,"body":"You're guaranteed you're gonna get a lemon."},{"startTime":1546.875,"endTime":1548.135,"body":"But as a bayou, you know this."},{"startTime":1548.995,"endTime":1553.352,"body":"So if you, if you know that are 70% of cars are lemons and 30%"},{"startTime":1553.352,"endTime":1557.71,"body":"of plums, the only rational price to bid is 2000, because you bid more than"},{"startTime":1557.71,"endTime":1560.615,"body":"you're going guarantee you're gonna get a, a lemon, right?"},{"startTime":1560.875,"endTime":1562.895,"body":"So you might as well just bid 2000."},{"startTime":1563.275,"endTime":1564.455,"body":"So who's hurt from this?"},{"startTime":1564.925,"endTime":1568.8,"body":"Well, the buyers aren't hurt because they know they're gonna get a lemon and they"},{"startTime":1568.8,"endTime":1569.575,"body":"get a lemon."},{"startTime":1569.685,"endTime":1571.575,"body":"It's exactly the symmetric information case."},{"startTime":1572.075,"endTime":1576.535,"body":"The lemon seller isn't hurt because they get 2000 symmetric information case they get 2000."},{"startTime":1577.195,"endTime":1581.434,"body":"But the plum sellers are hurt because they have superior information and a better product,"},{"startTime":1581.434,"endTime":1585.673,"body":"but they're not able to sell that product because they cannot convince the person on"},{"startTime":1585.673,"endTime":1587.935,"body":"the other side that they have a plumb."},{"startTime":1588.925,"endTime":1591.185,"body":"That's the essence of this situation."},{"startTime":1591.595,"endTime":1594.265,"body":"Let's go back to look at this opposite case here."},{"startTime":1595.045,"endTime":1598.705,"body":"30% of the cars are lemons and 70% are plumps."},{"startTime":1599.055,"endTime":1600.145,"body":"What price do you bid?"},{"startTime":1601.435,"endTime":1601.785,"body":"Right?"},{"startTime":1602.165,"endTime":1603.965,"body":"Answer is exactly the opposite."},{"startTime":1604.105,"endTime":1613.713,"body":"So what you do is 30% of the cars are lemons and 70% of them"},{"startTime":1613.713,"endTime":1614.995,"body":"are good."},{"startTime":1616.055,"endTime":1617.995,"body":"You bid 2,700 pounds."},{"startTime":1618.815,"endTime":1623.315,"body":"Now, if you bid 2,700 pounds, what do you get?"},{"startTime":1623.345,"endTime":1624.675,"body":"Will the lemon sellers sell?"},{"startTime":1625.575,"endTime":1626.435,"body":"Of course they'll sell."},{"startTime":1626.435,"endTime":1629.835,"body":"They're getting said 2,700 for a car, which is otherwise worth 2000."},{"startTime":1630.265,"endTime":1631.395,"body":"What about the plum sellers?"},{"startTime":1631.395,"endTime":1631.995,"body":"Will they sell?"},{"startTime":1632.865,"endTime":1634.875,"body":"Yeah, they will because they're for them."},{"startTime":1634.895,"endTime":1636.515,"body":"The plum sellers worth 2,500."},{"startTime":1636.775,"endTime":1638.115,"body":"You know, the plum is worth 2,500."},{"startTime":1638.115,"endTime":1642.54,"body":"They're get lease, they're getting 2,700, they will sell, but they're not happy about it,"},{"startTime":1642.54,"endTime":1642.835,"body":"right?"},{"startTime":1643.215,"endTime":1646.715,"body":"The buyer doesn't care because the buyer just gets, pays the average price."},{"startTime":1647.335,"endTime":1652.377,"body":"So sometimes 30% of the time they're overpaying for a lemon, but 70% of the"},{"startTime":1652.377,"endTime":1654.395,"body":"time they're getting a plum cheap."},{"startTime":1654.895,"endTime":1657.315,"body":"That's the basic story of asymetic information."},{"startTime":1657.575,"endTime":1662.69,"body":"The buyer knows that they have less information, so they take that information into account"},{"startTime":1662.69,"endTime":1664.395,"body":"when they're making a bid."},{"startTime":1665.775,"endTime":1670.384,"body":"In contrast, the only people who get hurt in this market are people who have"},{"startTime":1670.384,"endTime":1674.993,"body":"more information and a better product because they cannot persuade the buyer to pay more"},{"startTime":1674.993,"endTime":1675.915,"body":"than the average."},{"startTime":1677.055,"endTime":1678.715,"body":"That's the essence of the story."},{"startTime":1679.385,"endTime":1681.435,"body":"Okay, fine."},{"startTime":1683.655,"endTime":1687.438,"body":"Oh, there is a parallel to this, by the way, and that goes back to"},{"startTime":1687.438,"endTime":1691.222,"body":"the founder of this college, Thomas Gresham, who came up with a law, Gresham's law,"},{"startTime":1691.222,"endTime":1691.475,"body":"right?"},{"startTime":1691.495,"endTime":1694.395,"body":"You may have heard of it, just says bad money rises out the good."},{"startTime":1694.695,"endTime":1697.275,"body":"And that's something similar to the same story."},{"startTime":1697.505,"endTime":1701.115,"body":"What you have is you have currency, which can be used in two alternatives."},{"startTime":1701.135,"endTime":1704.555,"body":"One as a medium of exchange, and one as to be used as something."},{"startTime":1705.215,"endTime":1708.937,"body":"You use that something, use the money for the something which is worth it and"},{"startTime":1708.937,"endTime":1710.675,"body":"you only pass out the bad money."},{"startTime":1711.015,"endTime":1715.669,"body":"The so bad money is the one we circulate as a rough example, think of"},{"startTime":1715.669,"endTime":1720.323,"body":"the old days when we had actual paper pound, uh, you know, five pound notes"},{"startTime":1720.323,"endTime":1721.875,"body":"and 10 pound notes, right?"},{"startTime":1721.875,"endTime":1724.275,"body":"Which were the coin, which were the notes you see in circulation?"},{"startTime":1724.535,"endTime":1727.552,"body":"Not the nice ones, because if you get a nice one, that's the one you"},{"startTime":1727.552,"endTime":1727.955,"body":"don't spend."},{"startTime":1728.055,"endTime":1731.45,"body":"You spend the crappy one because you know you want to get rid of it"},{"startTime":1731.45,"endTime":1733.035,"body":"and pass it on to someone else."},{"startTime":1733.695,"endTime":1737.075,"body":"Of course, that's not a perfect example, but it's very, very similar."},{"startTime":1737.265,"endTime":1738.275,"body":"It's the same idea."},{"startTime":1739.585,"endTime":1739.875,"body":"Okay?"},{"startTime":1740.415,"endTime":1743.235,"body":"So what are the two problems of information asymmetry?"},{"startTime":1743.775,"endTime":1748.186,"body":"The first problem is called adverse selection, which means I'm a principal, I'm trying to"},{"startTime":1748.186,"endTime":1751.715,"body":"find an agent, how do I get the right type of agent?"},{"startTime":1752.335,"endTime":1759.315,"body":"The second one is called moral hazard, where the agent shirks after being hired."},{"startTime":1759.655,"endTime":1763.461,"body":"So one is before you write the contract, the other is after you write the"},{"startTime":1763.461,"endTime":1763.715,"body":"contract."},{"startTime":1764.225,"endTime":1764.515,"body":"Okay?"},{"startTime":1764.815,"endTime":1767.715,"body":"So how, what's the easiest way to illustrate this?"},{"startTime":1767.945,"endTime":1770.835,"body":"Well, one easy way is you're gonna think of the word agent."},{"startTime":1771.375,"endTime":1772.115,"body":"Who do you think of?"},{"startTime":1775.975,"endTime":1781.577,"body":"So let's solve these two problems of adverse selection and moral hazard using the example"},{"startTime":1781.577,"endTime":1783.445,"body":"of oh oh seven, right?"},{"startTime":1784.125,"endTime":1786.565,"body":"I guys have seen the latest movie."},{"startTime":1786.685,"endTime":1788.605,"body":"I think it's no Time to Die, right?"},{"startTime":1788.685,"endTime":1789.405,"body":"A lot of you, yeah."},{"startTime":1789.595,"endTime":1792.045,"body":"Well, I was kind of disappointed in that movie because he died."},{"startTime":1792.225,"endTime":1797.306,"body":"Oh shoot, sorry, spoiler alert didn't mean to give away the ending, but anyway, he"},{"startTime":1797.306,"endTime":1797.645,"body":"dies."},{"startTime":1797.665,"endTime":1801.645,"body":"So the moral problem is that was very deceptive, right?"},{"startTime":1801.725,"endTime":1803.725,"body":"I mean, no time to die, but he's dead."},{"startTime":1804.675,"endTime":1804.965,"body":"What?"},{"startTime":1805.095,"endTime":1806.125,"body":"Where, where did that?"},{"startTime":1806.265,"endTime":1811.315,"body":"So, okay, so anyway, M is now in the business of finding a new oh"},{"startTime":1811.315,"endTime":1812.325,"body":"oh seven, right?"},{"startTime":1812.325,"endTime":1813.085,"body":"We need a new one."},{"startTime":1813.705,"endTime":1816.045,"body":"But how do they find a new oh oh seven?"},{"startTime":1816.835,"endTime":1820.005,"body":"What are the characteristics of James Bond?"},{"startTime":1820.275,"endTime":1823.45,"body":"What are the most, what are the, what do you look for when you come"},{"startTime":1823.45,"endTime":1824.085,"body":"to James Bond?"},{"startTime":1824.555,"endTime":1825.045,"body":"Anybody?"},{"startTime":1828.605,"endTime":1828.805,"body":"Athletic."},{"startTime":1829.335,"endTime":1829.685,"body":"Sorry?"},{"startTime":1830.405,"endTime":1830.605,"body":"Athletic."},{"startTime":1831.365,"endTime":1832.045,"body":"Athletic, okay."},{"startTime":1832.665,"endTime":1837.565,"body":"But the most important thing about James Bond is not that tism bit."},{"startTime":1838.435,"endTime":1840.685,"body":"It's a double O prefix, right?"},{"startTime":1841.115,"endTime":1842.965,"body":"What does a double O prefix stand for?"},{"startTime":1843.365,"endTime":1846.085,"body":"A license to kill right now?"},{"startTime":1846.835,"endTime":1848.205,"body":"It's difficult to kill people."},{"startTime":1848.275,"endTime":1849.805,"body":"It's very difficult even to hurt people."},{"startTime":1849.835,"endTime":1852.965,"body":"Most normal people don't like hurting other people physically."},{"startTime":1853.265,"endTime":1853.725,"body":"We don't."},{"startTime":1853.835,"endTime":1856.645,"body":"It's, it's kind of inbuilt into most of us."},{"startTime":1857.435,"endTime":1858.845,"body":"This one is willing to kill."},{"startTime":1858.845,"endTime":1860.285,"body":"So in effect, it's a psychopath."},{"startTime":1861.065,"endTime":1866.333,"body":"But more important, you don't want to advertise for someone who likes to kill other"},{"startTime":1866.333,"endTime":1866.685,"body":"people."},{"startTime":1867.065,"endTime":1867.285,"body":"Why?"},{"startTime":1868.025,"endTime":1871.311,"body":"You could end up with James Bond, but you could also end up with Hannibal"},{"startTime":1871.311,"endTime":1872.845,"body":"Lecter from Silence of the Lambs, right?"},{"startTime":1873.225,"endTime":1875.725,"body":"You do not want him acting as James Bond."},{"startTime":1876.225,"endTime":1881.867,"body":"So essentially you want someone who's willing to kill, but only on behalf of his"},{"startTime":1881.867,"endTime":1886.005,"body":"or her country, basically a patriotic psychopath in some way, right?"},{"startTime":1887.275,"endTime":1889.325,"body":"Okay, so that's the adverse selection problem."},{"startTime":1889.505,"endTime":1892.525,"body":"How do we find the right type of James Bond?"},{"startTime":1893.945,"endTime":1896.245,"body":"But there's a bigger problem, mall hazard."},{"startTime":1896.905,"endTime":1902.107,"body":"If you read the books, not the movies, the movies don't show this, but Bond"},{"startTime":1902.107,"endTime":1907.31,"body":"was a male in the 1960s, a bachelor living in Mayfair, pretty grotty, you know,"},{"startTime":1907.31,"endTime":1909.045,"body":"one bedroom apartment, but bachelor."},{"startTime":1909.065,"endTime":1912.525,"body":"So unmade bed, dirty dishes in the sink, things like that."},{"startTime":1913.265,"endTime":1915.485,"body":"But when he's on assignment, where is he staying?"},{"startTime":1915.835,"endTime":1917.165,"body":"Staying at the Four Seasons."},{"startTime":1917.265,"endTime":1918.725,"body":"He has a fully stocked mini bar."},{"startTime":1918.865,"endTime":1920.245,"body":"His beautiful Russian spies."},{"startTime":1920.275,"endTime":1924.045,"body":"He's got the world, has his feet, does Bond want to come home?"},{"startTime":1926.005,"endTime":1926.605,"body":"Probably not, right?"},{"startTime":1927.125,"endTime":1931.725,"body":"M wants him to go out there, preferably on Rhine Air, right?"},{"startTime":1931.915,"endTime":1933.645,"body":"Kill that per the government budget, right?"},{"startTime":1933.985,"endTime":1938.908,"body":"Go out there, government budget, kill that person cheapest way possible, and then come right"},{"startTime":1938.908,"endTime":1939.565,"body":"back, right?"},{"startTime":1939.675,"endTime":1940.805,"body":"Hopefully on the same day."},{"startTime":1940.805,"endTime":1942.645,"body":"So we don't have to pay for overnight accommodation."},{"startTime":1944.665,"endTime":1947.085,"body":"But Bond on the other hand, doesn't wanna come home."},{"startTime":1947.225,"endTime":1950.685,"body":"So what's one going to say, oh, the security is extra tight."},{"startTime":1950.925,"endTime":1951.965,"body":"I have all these other problems."},{"startTime":1952.005,"endTime":1953.405,"body":"I haven't been able to get the information."},{"startTime":1953.945,"endTime":1956.845,"body":"All these problems arise during a Bond movie."},{"startTime":1957.345,"endTime":1961.93,"body":"You gotta wonder how much of that is due to mall hazard problems and how"},{"startTime":1961.93,"endTime":1963.765,"body":"much is really the situation here."},{"startTime":1963.865,"endTime":1967.645,"body":"So the next time you watch a Bond movie, if there was no moha adverse"},{"startTime":1967.645,"endTime":1970.165,"body":"selection problem, the movie would be over in five minutes."},{"startTime":1970.505,"endTime":1973.845,"body":"In real life it takes two and a half hours principal agent problem."},{"startTime":1975.785,"endTime":1981.297,"body":"But in case you don't believe me, there's actually a paper written about this and"},{"startTime":1981.297,"endTime":1984.605,"body":"the paper said, what does Bond do on assignment?"},{"startTime":1984.865,"endTime":1989.013,"body":"So this is a long paper published in the NB I'll talk about in a"},{"startTime":1989.013,"endTime":1992.885,"body":"minute, but almost every pa, almost every book talks about how much he eats."},{"startTime":1993.185,"endTime":1996.83,"body":"He talks about half a point of orange juice, three scrambled eggs and bacon, double"},{"startTime":1996.83,"endTime":1998.045,"body":"portion of coffee without sugar."},{"startTime":1998.385,"endTime":2002.491,"body":"He had turbo Porsche sauce musin half the best roast partridge he eaten in his"},{"startTime":2002.491,"endTime":2002.765,"body":"life."},{"startTime":2003.105,"endTime":2006.245,"body":"He eats 12 times per novel or once every 21 pages."},{"startTime":2007.065,"endTime":2011.565,"body":"And if you take his, and if you take his budget, which he devote to"},{"startTime":2011.565,"endTime":2015.165,"body":"that on his government salary, that would be 25% of his budget."},{"startTime":2015.165,"endTime":2017.685,"body":"That's a significant amount to eat out on a government salary."},{"startTime":2018.865,"endTime":2023.645,"body":"So the paper was, uh, by Julian Trim and Thomas Weiss called License to Dying."},{"startTime":2024.385,"endTime":2028.532,"body":"And what the paper concludes is a license to kill comes with a license to"},{"startTime":2028.532,"endTime":2029.085,"body":"spend, right?"},{"startTime":2029.085,"endTime":2029.885,"body":"Especially on meals."},{"startTime":2030.865,"endTime":2034.245,"body":"So that's the adverse selection problems we see."},{"startTime":2035.305,"endTime":2039.285,"body":"So what are the solutions to these adverse selections and moral hazard problems?"},{"startTime":2039.735,"endTime":2041.485,"body":"First problem is signaling."},{"startTime":2042.645,"endTime":2043.685,"body":"Remember there are two types of agents."},{"startTime":2044.095,"endTime":2049.671,"body":"Agent number one, both agents have better information, they have superior information, but the first"},{"startTime":2049.671,"endTime":2052.645,"body":"type of agent also has a better product."},{"startTime":2053.465,"endTime":2057.085,"body":"The second agent has superior information, but a worse product."},{"startTime":2057.505,"endTime":2064.123,"body":"So the better informed and better product agent chooses an action to reveal that type"},{"startTime":2064.123,"endTime":2064.565,"body":"screening."},{"startTime":2064.745,"endTime":2069.445,"body":"The less informed a party, the principle gives the agent a menu of payoffs."},{"startTime":2069.554,"endTime":2072.245,"body":"What you pick tells me what type of person you are."},{"startTime":2073.195,"endTime":2073.485,"body":"Okay?"},{"startTime":2073.824,"endTime":2076.245,"body":"So let's take an example of this one."},{"startTime":2076.625,"endTime":2078.725,"body":"So this is, now we're moving to Michael Spence."},{"startTime":2078.945,"endTime":2080.485,"body":"So why did he get a Nobel Prize?"},{"startTime":2081.264,"endTime":2085.364,"body":"So Michael Spence's most famous paper was about the labor market."},{"startTime":2086.264,"endTime":2092.122,"body":"So he said, well imagine a labor market where there are two types of workers,"},{"startTime":2092.122,"endTime":2093.685,"body":"good and bad, okay?"},{"startTime":2094.735,"endTime":2098.619,"body":"Every worker knows whether he or she's a good worker, but there's no way for"},{"startTime":2098.619,"endTime":2102.245,"body":"an employer to figure out whether they're a good worker or a bad worker."},{"startTime":2104.025,"endTime":2106.405,"body":"But the good workers are worth 80,000 to firm."},{"startTime":2106.945,"endTime":2109.005,"body":"The bad workers are worth only 50,000."},{"startTime":2109.785,"endTime":2114.285,"body":"The good workers have an outside option of taking a job in some other industry"},{"startTime":2114.285,"endTime":2117.285,"body":"for 55 for bad workers, the alternative only pays 35."},{"startTime":2117.285,"endTime":2120.405,"body":"They don't really want to do this, but that's the worst case scenario."},{"startTime":2120.585,"endTime":2123.005,"body":"If they don't get a job in this industry, okay?"},{"startTime":2123.545,"endTime":2128.44,"body":"Now the employer doesn't know who's good or bad, but they know that half the"},{"startTime":2128.44,"endTime":2130.725,"body":"workers are good and half are bad."},{"startTime":2130.745,"endTime":2131.805,"body":"You just don't know which one."},{"startTime":2132.835,"endTime":2133.125,"body":"Okay?"},{"startTime":2133.705,"endTime":2139.334,"body":"Now, competition among employers drives up the market wage to the true expected value of"},{"startTime":2139.334,"endTime":2140.085,"body":"the employee."},{"startTime":2140.595,"endTime":2140.885,"body":"Okay?"},{"startTime":2141.385,"endTime":2145.525,"body":"Now, assuming that's true, who is hired and at what wage?"},{"startTime":2146.165,"endTime":2148.725,"body":"Remember that good workers are worth 80,000 to the firm."},{"startTime":2149.265,"endTime":2153.656,"body":"Bad workers are worth 50 good workers from an outside option taking that other job,"},{"startTime":2153.656,"endTime":2158.048,"body":"which they don't really want, but they will take it if that's the worst case"},{"startTime":2158.048,"endTime":2159.805,"body":"for 55 bad workers is 35."},{"startTime":2160.025,"endTime":2171.62,"body":"So if you're an employer, you think half the workers are good, half are bad,"},{"startTime":2171.62,"endTime":2175.485,"body":"what will you pay number?"},{"startTime":2175.485,"endTime":2177.925,"body":"There are very few workers, lots of employers,"},{"startTime":2189.235,"endTime":2189.585,"body":"Right?"},{"startTime":2190.045,"endTime":2198.603,"body":"So the correct answer is indeed 60 5K because it's halfway between 80 and uh"},{"startTime":2198.603,"endTime":2199.745,"body":"50, right?"},{"startTime":2199.965,"endTime":2205.379,"body":"So coming back in here, you are offering 65,000, half, halfway, half the workers are"},{"startTime":2205.379,"endTime":2207.545,"body":"good, half the workers are bad."},{"startTime":2207.685,"endTime":2209.545,"body":"As an employer, are you worse off?"},{"startTime":2210.725,"endTime":2213.305,"body":"No, because half the time you're getting a good worker cheap."},{"startTime":2213.535,"endTime":2215.865,"body":"Half the time you're getting a overpaying for a bad worker."},{"startTime":2216.175,"endTime":2217.465,"body":"Well, so on average you don't care."},{"startTime":2218.495,"endTime":2219.585,"body":"What about a bad worker?"},{"startTime":2220.645,"endTime":2222.105,"body":"Do they like getting paid 65?"},{"startTime":2223.005,"endTime":2224.385,"body":"Of course they love it, right?"},{"startTime":2224.535,"endTime":2226.825,"body":"They love asymetic information, they get more money."},{"startTime":2227.525,"endTime":2230.625,"body":"The only ones who don't like this are the good workers."},{"startTime":2231.325,"endTime":2235.385,"body":"So the good workers have an incentive to signal how good workers they are."},{"startTime":2236.365,"endTime":2239.905,"body":"So the question is, what is a good signal, right?"},{"startTime":2240.845,"endTime":2242.145,"body":"The signal works like this."},{"startTime":2242.165,"endTime":2243.625,"body":"The signal must be costly."},{"startTime":2244.245,"endTime":2247.328,"body":"And for the good types, the benefit has to be bigger than the cost for"},{"startTime":2247.328,"endTime":2247.945,"body":"the bad type."},{"startTime":2247.945,"endTime":2249.585,"body":"The cost has to be bigger than the benefit."},{"startTime":2250.485,"endTime":2255.935,"body":"So what could be a credible signal for the labor market to understand what a"},{"startTime":2255.935,"endTime":2257.025,"body":"signal actually means?"},{"startTime":2257.285,"endTime":2259.225,"body":"Let me show you a couple of examples."},{"startTime":2259.895,"endTime":2264.258,"body":"This is a photo I took up in Yorkshire and I saw the names of"},{"startTime":2264.258,"endTime":2266.585,"body":"these solicitors, which I thought was extremely good."},{"startTime":2266.855,"endTime":2269.065,"body":"It's Golden Butcher solicitors."},{"startTime":2269.145,"endTime":2272.718,"body":"I thought they were, you know, for, I would love to have solicitors with that"},{"startTime":2272.718,"endTime":2274.625,"body":"name, but would it be a good signal?"},{"startTime":2274.625,"endTime":2277.305,"body":"Would it be a signal of a good solicitor?"},{"startTime":2277.835,"endTime":2278.185,"body":"Right?"},{"startTime":2278.185,"endTime":2278.825,"body":"Obviously not."},{"startTime":2278.825,"endTime":2282.825,"body":"Because if it, if people started hiring these people on the basis of their name,"},{"startTime":2282.825,"endTime":2284.425,"body":"what would every other solicitor do?"},{"startTime":2285.455,"endTime":2287.105,"body":"They would change their names, right?"},{"startTime":2288.335,"endTime":2290.785,"body":"Destroy and rubs or something like that, right?"},{"startTime":2291.525,"endTime":2292.985,"body":"Or let me give another example."},{"startTime":2293.805,"endTime":2301.511,"body":"Um, anybody in this room who hates running does not like running, you know, exercise"},{"startTime":2301.511,"endTime":2302.025,"body":"running."},{"startTime":2302.365,"endTime":2303.865,"body":"Oh, I see some hands going up in the back."},{"startTime":2304.585,"endTime":2305.145,"body":"Excellent, right?"},{"startTime":2305.645,"endTime":2308.905,"body":"But being an athlete is seen as a good thing."},{"startTime":2309.325,"endTime":2311.865,"body":"So here is a possibility, right?"},{"startTime":2312.125,"endTime":2316.298,"body":"You can sign up for what's called the home run marathon and you get a"},{"startTime":2316.298,"endTime":2318.525,"body":"T-shirt saying, I ran the home run marathon."},{"startTime":2318.865,"endTime":2321.825,"body":"The point is, you don't actually need to get out of bed because the best"},{"startTime":2321.825,"endTime":2323.405,"body":"kind of running is not running at all."},{"startTime":2323.625,"endTime":2326.445,"body":"You just get a T-shirt which says, I ran the home run."},{"startTime":2326.545,"endTime":2328.525,"body":"So this is not a great signal though, right?"},{"startTime":2328.525,"endTime":2330.325,"body":"Because very easy to copy, right?"},{"startTime":2330.545,"endTime":2335.08,"body":"So just saying that someone's a marathon runner doesn't mean that they really like, or"},{"startTime":2335.08,"endTime":2335.685,"body":"the exercise."},{"startTime":2336.225,"endTime":2337.285,"body":"So what is a good signal?"},{"startTime":2338.115,"endTime":2341.855,"body":"Well, Spence said the answer is education."},{"startTime":2343.635,"endTime":2343.855,"body":"Why?"},{"startTime":2344.345,"endTime":2345.775,"body":"Let's make an extreme assumption."},{"startTime":2346.185,"endTime":2350.455,"body":"Let's assume that you learn absolutely nothing when you go to a business school."},{"startTime":2350.885,"endTime":2351.175,"body":"Zero."},{"startTime":2351.355,"endTime":2352.855,"body":"And everybody knows this."},{"startTime":2353.485,"endTime":2356.895,"body":"They know that when you go to school, the professors teach you nothing."},{"startTime":2357.715,"endTime":2359.095,"body":"What's the value of going to school?"},{"startTime":2360.325,"endTime":2360.935,"body":"What do you think?"},{"startTime":2365.685,"endTime":2368.815,"body":"Well, Spence says, it's still can be extremely valuable."},{"startTime":2368.985,"endTime":2370.015,"body":"Let's show why."},{"startTime":2371.025,"endTime":2376.715,"body":"Let's assume it costs you 25,000 to apply to and graduate from a prestigious business"},{"startTime":2376.715,"endTime":2377.095,"body":"school."},{"startTime":2377.095,"endTime":2378.455,"body":"This, by the way, is an underestimate."},{"startTime":2378.455,"endTime":2379.935,"body":"The prices are higher, right?"},{"startTime":2379.955,"endTime":2382.055,"body":"So, but anyway, it's 25,000 pounds."},{"startTime":2382.395,"endTime":2387.699,"body":"But for a bad worker, because they're less motivated, they're less intelligent, they must spend"},{"startTime":2387.699,"endTime":2390.175,"body":"an extra 10 k cost them 30,005."},{"startTime":2390.175,"endTime":2394.295,"body":"35,000 because they need prep courses to get, you know, admitted."},{"startTime":2394.365,"endTime":2398.175,"body":"They need tutors in school, they have psychic costs of working twice as hard."},{"startTime":2398.205,"endTime":2399.335,"body":"They don't enjoy this."},{"startTime":2399.995,"endTime":2404.775,"body":"The good worker enjoys this, cost them 25, bad worker, 35."},{"startTime":2405.085,"endTime":2405.375,"body":"Okay?"},{"startTime":2405.995,"endTime":2410.295,"body":"Now the question is of of course, who gets a degree, right?"},{"startTime":2410.755,"endTime":2416.932,"body":"So let's assume that if you have a degree, I will instantly assume as an"},{"startTime":2416.932,"endTime":2419.815,"body":"employer that you are a good worker."},{"startTime":2421.025,"endTime":2421.315,"body":"Okay?"},{"startTime":2421.535,"endTime":2424.595,"body":"So I come to you and say, are you a good worker?"},{"startTime":2424.785,"endTime":2425.475,"body":"What would you say?"},{"startTime":2426.545,"endTime":2427.595,"body":"Obviously, right?"},{"startTime":2427.935,"endTime":2429.115,"body":"And so I say prove it."},{"startTime":2429.735,"endTime":2432.795,"body":"He pulls out his degree, slaps it on the table, he says, that's my proof."},{"startTime":2432.795,"endTime":2435.475,"body":"And I'm like, whoa, 80,000 right?"},{"startTime":2435.975,"endTime":2437.755,"body":"Now how much does the degree cost?"},{"startTime":2437.755,"endTime":2439.355,"body":"This person 25."},{"startTime":2439.615,"endTime":2441.955,"body":"So 80 minus 25 is still 55."},{"startTime":2441.955,"endTime":2444.395,"body":"That's just as worth badly off as this one here."},{"startTime":2444.945,"endTime":2447.195,"body":"However, let's look at the bad workers."},{"startTime":2448.155,"endTime":2451.395,"body":"I ask a bad worker, are you a good worker?"},{"startTime":2451.495,"endTime":2453.395,"body":"And they say, yeah, of course I say prove it."},{"startTime":2453.615,"endTime":2456.275,"body":"If they get a degree, how much is costing them?"},{"startTime":2456.535,"endTime":2457.355,"body":"35?"},{"startTime":2458.135,"endTime":2461.275,"body":"80 minus 35 is 45."},{"startTime":2461.735,"endTime":2464.355,"body":"But if they never don't get the degree, they get 50 K."},{"startTime":2464.855,"endTime":2470.171,"body":"So the cost of the degree allows the good workers to separate themselves from the"},{"startTime":2470.171,"endTime":2471.235,"body":"bad workers, right?"},{"startTime":2471.235,"endTime":2474.915,"body":"The bad workers will say, and if I don't get the degree, I get 50."},{"startTime":2475.015,"endTime":2476.475,"body":"If I get the degree I get 45."},{"startTime":2476.695,"endTime":2479.635,"body":"So I might as well not bother getting the degree, okay?"},{"startTime":2479.935,"endTime":2483.155,"body":"So that can actually be seen."},{"startTime":2483.495,"endTime":2485.675,"body":"For example, this is an article from the Wall Street Journal."},{"startTime":2486.085,"endTime":2490.395,"body":"We're talking about MBAs getting job offers before they step on the campus."},{"startTime":2491.055,"endTime":2495.18,"body":"So even before you start, you know, you are learning in business school, you already"},{"startTime":2495.18,"endTime":2496.005,"body":"got a job."},{"startTime":2497.015,"endTime":2501.717,"body":"Again, it's a signal you manage to get in, you're good enough to get a"},{"startTime":2501.717,"endTime":2503.285,"body":"degree, but signals are everywhere."},{"startTime":2504.095,"endTime":2504.965,"body":"Let's take an example."},{"startTime":2505.795,"endTime":2507.325,"body":"Peacock tails, right?"},{"startTime":2507.785,"endTime":2509.605,"body":"Why does a male peacock have a tail?"},{"startTime":2513.625,"endTime":2513.845,"body":"Why?"},{"startTime":2513.905,"endTime":2514.405,"body":"But why?"},{"startTime":2514.585,"endTime":2515.805,"body":"Why does it work as a signal?"},{"startTime":2519.655,"endTime":2520.005,"body":"Sorry?"},{"startTime":2521.115,"endTime":2521.805,"body":"It's colorful."},{"startTime":2522.095,"endTime":2522.765,"body":"Attraction."},{"startTime":2523.695,"endTime":2524.685,"body":"Attraction, yes."},{"startTime":2524.685,"endTime":2525.605,"body":"But the female peacock."},{"startTime":2525.665,"endTime":2528.285,"body":"Female peacock has a brain that about that size, right?"},{"startTime":2528.365,"endTime":2529.885,"body":"I mean what does she know about attraction?"},{"startTime":2530.265,"endTime":2531.325,"body":"Yes, very cost."},{"startTime":2531.695,"endTime":2532.685,"body":"Sorry, why?"},{"startTime":2532.685,"endTime":2533.085,"body":"Exactly?"},{"startTime":2533.225,"endTime":2533.445,"body":"Why?"},{"startTime":2534.485,"endTime":2535.165,"body":"'cause you get eaten"},{"startTime":2535.385,"endTime":2536.805,"body":"And uh, correct, right?"},{"startTime":2536.825,"endTime":2538.205,"body":"That's a se cost of the signal."},{"startTime":2538.635,"endTime":2543.245,"body":"Look at this tail self, it's huge and it's colorful and it's very visible."},{"startTime":2543.785,"endTime":2546.525,"body":"Female peacocks can see it, but so can predators."},{"startTime":2547.275,"endTime":2549.685,"body":"Dogs, leopards, humans, whatever."},{"startTime":2550.065,"endTime":2555.3,"body":"If the peacock has survived to adulthood with a massive tail, that's saying to the"},{"startTime":2555.3,"endTime":2557.045,"body":"female, I'm a tough guy."},{"startTime":2557.505,"endTime":2558.805,"body":"I'm really a tough peacock."},{"startTime":2558.805,"endTime":2560.605,"body":"Like a super peacock, right?"},{"startTime":2561.105,"endTime":2568.765,"body":"So it evolution favors getting a massive, colorful and obvious tale."},{"startTime":2569.625,"endTime":2570.885,"body":"Or let's take another example."},{"startTime":2571.825,"endTime":2576.485,"body":"You have two choices working, uh, when you forget your first job, right?"},{"startTime":2576.825,"endTime":2579.485,"body":"One thing is what we call the super hard worker strategy."},{"startTime":2579.735,"endTime":2584.529,"body":"Which means that you walk into office at five o'clock in the morning, you carry"},{"startTime":2584.529,"endTime":2588.045,"body":"these heavy piles of paper around, you're sweating all the time."},{"startTime":2588.625,"endTime":2590.605,"body":"You look like you're obviously exhausted."},{"speaker":"You leave at 8","startTime":2590.985,"endTime":2593.405,"body":"00 PM after everybody else leaves."},{"speaker":"You leave at 8","startTime":2593.425,"endTime":2595.045,"body":"That's the super hard worker strategy."},{"speaker":"You leave at 8","startTime":2595.625,"endTime":2596.925,"body":"The super smart strategy."},{"speaker":"You leave at 8","startTime":2598.005,"endTime":2602.965,"body":"You come into work about 10 o'clock carrying a tennis racket over your shoulder, you"},{"speaker":"You leave at 8","startTime":2602.965,"endTime":2607.925,"body":"know, you breeze through the day, you leave at three in the afternoon, but you"},{"speaker":"You leave at 8","startTime":2607.925,"endTime":2612.225,"body":"get the same amount of work done as the person who's apparently working."},{"speaker":"You leave at 8","startTime":2612.275,"endTime":2620.785,"body":"Super hard question for you guys is what do you think is a better strategy?"},{"speaker":"You leave at 8","startTime":2621.045,"endTime":2624.665,"body":"The super hard worker strategy or the super smart worker strategy?"},{"speaker":"You leave at 8","startTime":2637.825,"endTime":2641.755,"body":"Alright, so looks like the super smart worker strategy dominates."},{"speaker":"You leave at 8","startTime":2644.635,"endTime":2648.315,"body":"I would unfortunately go with the super hard worker strategy, right?"},{"speaker":"You leave at 8","startTime":2648.735,"endTime":2652.555,"body":"And the reason is simple is because there are two types of information asymmetric here."},{"speaker":"You leave at 8","startTime":2652.935,"endTime":2655.755,"body":"One is they don't know your ability, right?"},{"speaker":"You leave at 8","startTime":2655.755,"endTime":2658.075,"body":"You're trying to show that you're very able by coming in."},{"speaker":"You leave at 8","startTime":2658.375,"endTime":2663.325,"body":"You know, they're so, you're so smart, but the manager doesn't know how difficult the"},{"speaker":"You leave at 8","startTime":2663.325,"endTime":2664.315,"body":"job is either."},{"speaker":"You leave at 8","startTime":2664.895,"endTime":2666.675,"body":"So they're giving you a job, you do it in 10 minutes."},{"speaker":"You leave at 8","startTime":2666.755,"endTime":2667.635,"body":"I like the job is too easy."},{"speaker":"You leave at 8","startTime":2668.495,"endTime":2669.075,"body":"You don't want that."},{"speaker":"You leave at 8","startTime":2669.485,"endTime":2673.97,"body":"Trust me, if you are working, you want to pretend the job is super difficult,"},{"speaker":"You leave at 8","startTime":2673.97,"endTime":2675.765,"body":"but you're doing it anyway, right?"},{"speaker":"You leave at 8","startTime":2675.765,"endTime":2679.965,"body":"So even if the job is dead easy, do not pretend the job is very"},{"speaker":"You leave at 8","startTime":2679.965,"endTime":2680.245,"body":"easy."},{"speaker":"You leave at 8","startTime":2680.245,"endTime":2681.325,"body":"They'll just give you more work."},{"speaker":"You leave at 8","startTime":2682.515,"endTime":2682.805,"body":"Okay?"},{"speaker":"You leave at 8","startTime":2683.025,"endTime":2687.811,"body":"So the signal here is the cost of trying to bear with this thing of,"},{"speaker":"You leave at 8","startTime":2687.811,"endTime":2690.045,"body":"okay, I have eight hours to go."},{"speaker":"You leave at 8","startTime":2690.045,"endTime":2693.225,"body":"I finish my job already in five minutes, but I have to sit through this"},{"speaker":"You leave at 8","startTime":2693.225,"endTime":2694.285,"body":"office for another eight hours."},{"speaker":"You leave at 8","startTime":2694.285,"endTime":2695.005,"body":"That's a cost."},{"speaker":"You leave at 8","startTime":2695.185,"endTime":2697.045,"body":"And for smart people it's a big cost."},{"speaker":"You leave at 8","startTime":2697.465,"endTime":2698.605,"body":"So that's the signal."},{"speaker":"You leave at 8","startTime":2699.185,"endTime":2700.845,"body":"How about emotions?"},{"speaker":"You leave at 8","startTime":2700.915,"endTime":2701.885,"body":"Like getting angry?"},{"speaker":"You leave at 8","startTime":2702.585,"endTime":2707.245,"body":"Why is that a signal \u003caffirmative\u003e?"},{"speaker":"You leave at 8","startTime":2709.035,"endTime":2710.765,"body":"Well, is it good to get angry?"},{"speaker":"You leave at 8","startTime":2712.065,"endTime":2712.885,"body":"Yes, yes."},{"speaker":"You leave at 8","startTime":2713.595,"endTime":2715.405,"body":"Some answers yes, some answers no."},{"speaker":"You leave at 8","startTime":2715.405,"endTime":2719.085,"body":"Getting angry is actually can be very, very dangerous, right?"},{"speaker":"You leave at 8","startTime":2719.115,"endTime":2721.645,"body":"There's a lot of articles which show how it hurts your health."},{"speaker":"You leave at 8","startTime":2721.905,"endTime":2728.078,"body":"For example, you're significantly more likely to have, uh, heart attacks, blood pressure, blood damage,"},{"speaker":"You leave at 8","startTime":2728.078,"endTime":2732.605,"body":"the lining of your arteries cause a buildup in fatty plagues."},{"speaker":"You leave at 8","startTime":2732.935,"endTime":2733.885,"body":"Whole bunch of things."},{"speaker":"You leave at 8","startTime":2734.465,"endTime":2738.045,"body":"So what is the evolutionary reason signal for getting angry?"},{"speaker":"You leave at 8","startTime":2738.345,"endTime":2739.165,"body":"The answer is simple."},{"speaker":"You leave at 8","startTime":2739.995,"endTime":2741.125,"body":"It's about negotiation."},{"speaker":"You leave at 8","startTime":2741.185,"endTime":2746.351,"body":"If you are negotiating with somebody, there's a rational dis discussion discourse of, you know,"},{"speaker":"You leave at 8","startTime":2746.351,"endTime":2750.485,"body":"people argue with each other, one of them wins, the other loses."},{"speaker":"You leave at 8","startTime":2750.865,"endTime":2755.391,"body":"But if that person who's losing gets angry is basically saying, I'm giving up control"},{"speaker":"You leave at 8","startTime":2755.391,"endTime":2757.805,"body":"of my, my thinking part of my brain."},{"speaker":"You leave at 8","startTime":2758.045,"endTime":2759.285,"body":"'cause something which is gonna punch you in the face."},{"speaker":"You leave at 8","startTime":2759.285,"endTime":2763.769,"body":"If you don't, you know, giving to me the other person isn't angry, they're like,"},{"speaker":"You leave at 8","startTime":2763.769,"endTime":2764.965,"body":"okay, you know what?"},{"speaker":"You leave at 8","startTime":2765.035,"endTime":2765.765,"body":"I'll give it to you."},{"speaker":"You leave at 8","startTime":2765.975,"endTime":2766.325,"body":"Right?"},{"speaker":"You leave at 8","startTime":2766.325,"endTime":2770.765,"body":"Know, unfortunately human beings both get angry and then it keeps escalating after that."},{"speaker":"You leave at 8","startTime":2770.905,"endTime":2775.005,"body":"So it's not a perfect strategy, but it is definitely a good strategy."},{"speaker":"You leave at 8","startTime":2775.555,"endTime":2779.045,"body":"Same thing you can talk about why do people fall in love, right?"},{"speaker":"You leave at 8","startTime":2779.045,"endTime":2782.205,"body":"There's a difference between loving somebody and falling in love with somebody."},{"speaker":"You leave at 8","startTime":2783.185,"endTime":2784.725,"body":"So what might that be?"},{"speaker":"You leave at 8","startTime":2785.585,"endTime":2789.005,"body":"The answer is about, again, falling in love with something you can't help."},{"speaker":"You leave at 8","startTime":2789.585,"endTime":2793.229,"body":"So the idea is, well, from an economic point of view, the idea is if"},{"speaker":"You leave at 8","startTime":2793.229,"endTime":2796.873,"body":"you fall in love with somebody, your partner says, okay, this person can't get out"},{"speaker":"You leave at 8","startTime":2796.873,"endTime":2797.845,"body":"of this very easily."},{"speaker":"You leave at 8","startTime":2797.875,"endTime":2799.845,"body":"They can't control the falling in love part."},{"speaker":"You leave at 8","startTime":2800.185,"endTime":2801.725,"body":"So they want abandonment."},{"speaker":"You leave at 8","startTime":2801.725,"endTime":2803.725,"body":"Some someone nicer comes along, right?"},{"speaker":"You leave at 8","startTime":2803.725,"endTime":2807.894,"body":"But if you're calculating and saying, okay, this is a positive net present value investment,"},{"speaker":"You leave at 8","startTime":2807.894,"endTime":2812.063,"body":"I'm gonna go with this person because a positive NPV, uh, then someone with a"},{"speaker":"You leave at 8","startTime":2812.063,"endTime":2814.565,"body":"higher NPV comes along, you're gonna dump this person."},{"speaker":"You leave at 8","startTime":2814.785,"endTime":2817.565,"body":"So they're not gonna invest in the relationship either, right?"},{"speaker":"You leave at 8","startTime":2817.985,"endTime":2820.765,"body":"So if you're a finance person, this does not happen very easily."},{"speaker":"You leave at 8","startTime":2821.795,"endTime":2823.365,"body":"Okay, what about screening?"},{"speaker":"You leave at 8","startTime":2823.975,"endTime":2828.203,"body":"Let's say you're a travel agent who can put together seven safari trips at $9,000"},{"speaker":"You leave at 8","startTime":2828.203,"endTime":2828.485,"body":"each."},{"speaker":"You leave at 8","startTime":2828.715,"endTime":2831.956,"body":"Cost you nothing to put together a trip, but that's the cost of all the"},{"speaker":"You leave at 8","startTime":2831.956,"endTime":2832.605,"body":"things you do."},{"speaker":"You leave at 8","startTime":2832.985,"endTime":2837.295,"body":"You think there are five buyers who are willing to pay 12,005 buyers who are"},{"speaker":"You leave at 8","startTime":2837.295,"endTime":2838.445,"body":"willing to pay 10,000."},{"speaker":"You leave at 8","startTime":2839.765,"endTime":2841.665,"body":"Now they're buying with the internet."},{"speaker":"You leave at 8","startTime":2841.665,"endTime":2843.385,"body":"So you don't know these people, you've never met them."},{"speaker":"You leave at 8","startTime":2844.325,"endTime":2847.185,"body":"The question is, what price did you set?"},{"speaker":"You leave at 8","startTime":2848.365,"endTime":2856.365,"body":"So you have, you can charge 10,000, 11,000, 12,000 or anything else."},{"speaker":"You leave at 8","startTime":2856.765,"endTime":2861.771,"body":"Remember it costs you 9,000 to put together the trip and you think five people"},{"speaker":"You leave at 8","startTime":2861.771,"endTime":2866.777,"body":"are willing to pay 10,005 people are willing to pay 12, but you only have"},{"speaker":"You leave at 8","startTime":2866.777,"endTime":2867.445,"body":"seven trips."},{"speaker":"You leave at 8","startTime":2877.845,"endTime":2885.766,"body":"Well, 11,000 is definitely not the right answer, simply because it's either 10 or 12,"},{"speaker":"You leave at 8","startTime":2885.766,"endTime":2886.295,"body":"right?"},{"speaker":"You leave at 8","startTime":2886.755,"endTime":2891.267,"body":"If you sell, set your price at 10,000, you can sell seven tickets, all the"},{"speaker":"You leave at 8","startTime":2891.267,"endTime":2893.975,"body":"seven trips, but you own only 1000 per trip."},{"speaker":"You leave at 8","startTime":2893.975,"endTime":2895.375,"body":"So make profit is 7,000."},{"speaker":"You leave at 8","startTime":2895.795,"endTime":2898.495,"body":"If you set it at 12, you sell only to five people."},{"speaker":"You leave at 8","startTime":2899.155,"endTime":2900.535,"body":"The five people who are willing to pay 12."},{"speaker":"You leave at 8","startTime":2901.155,"endTime":2903.375,"body":"But you end up with 3000 per trip."},{"speaker":"You leave at 8","startTime":2903.515,"endTime":2906.495,"body":"So 3000 times five you end up with a $15,000 profit."},{"speaker":"You leave at 8","startTime":2906.885,"endTime":2907.175,"body":"Okay?"},{"speaker":"You leave at 8","startTime":2907.395,"endTime":2910.935,"body":"So it's better to set for 12 than for 10, okay?"},{"speaker":"You leave at 8","startTime":2911.555,"endTime":2915.473,"body":"But what would be ideal if I can figure out how much you're willing to"},{"speaker":"You leave at 8","startTime":2915.473,"endTime":2915.735,"body":"pay?"},{"speaker":"You leave at 8","startTime":2916.035,"endTime":2920.455,"body":"And then I charge five people 12,000 and charge the remaining two people 10,000."},{"speaker":"You leave at 8","startTime":2920.915,"endTime":2921.895,"body":"That's screening."},{"speaker":"You leave at 8","startTime":2922.075,"endTime":2923.375,"body":"How do I elicit from you?"},{"speaker":"You leave at 8","startTime":2923.635,"endTime":2926.655,"body":"How much you're willing to pay when you have more information than me?"},{"speaker":"You leave at 8","startTime":2926.655,"endTime":2928.695,"body":"The buyer now has more information than the seller."},{"speaker":"You leave at 8","startTime":2929.555,"endTime":2935.255,"body":"So this is where airlines do a fabulous job of figuring out exactly how much"},{"speaker":"You leave at 8","startTime":2935.255,"endTime":2936.775,"body":"you're willing to pay."},{"speaker":"You leave at 8","startTime":2937.595,"endTime":2942.405,"body":"For example, have you guys ever wondered when you're standing in line or you know,"},{"speaker":"You leave at 8","startTime":2942.405,"endTime":2946.575,"body":"getting on the plane, who gets on the plane first business class, right?"},{"speaker":"You leave at 8","startTime":2946.915,"endTime":2947.695,"body":"Why business class?"},{"speaker":"You leave at 8","startTime":2947.765,"endTime":2951.611,"body":"It's inefficient because they're holding up the front of the plane when everybody else, you"},{"speaker":"You leave at 8","startTime":2951.611,"endTime":2954.175,"body":"know, is waiting to get through the business class people."},{"speaker":"You leave at 8","startTime":2954.305,"endTime":2955.655,"body":"These guys are getting settled down."},{"speaker":"You leave at 8","startTime":2955.655,"endTime":2956.775,"body":"They're having drinks or whatever."},{"speaker":"You leave at 8","startTime":2957.475,"endTime":2958.175,"body":"So why?"},{"speaker":"You leave at 8","startTime":2959.035,"endTime":2961.695,"body":"The answer is it's not about efficiency."},{"speaker":"You leave at 8","startTime":2961.925,"endTime":2965.623,"body":"It's about making you in the economy feel bad that if only you had spent"},{"speaker":"You leave at 8","startTime":2965.623,"endTime":2969.321,"body":"that extra money, you could have been one of those guys sneering at the people"},{"speaker":"You leave at 8","startTime":2969.321,"endTime":2969.815,"body":"behind you."},{"speaker":"You leave at 8","startTime":2971.125,"endTime":2971.935,"body":"It's all about that."},{"speaker":"You leave at 8","startTime":2972.315,"endTime":2973.815,"body":"Or let me ask you a different question."},{"speaker":"You leave at 8","startTime":2974.045,"endTime":2976.135,"body":"Have you noticed a seat pitch on most airlines?"},{"speaker":"You leave at 8","startTime":2976.795,"endTime":2978.695,"body":"That's about 30 to 32 degrees."},{"speaker":"You leave at 8","startTime":2978.725,"endTime":2980.695,"body":"Look this up on seat guru.com."},{"speaker":"You leave at 8","startTime":2981.205,"endTime":2985.696,"body":"Seat guru.com tells you an economy class seat 32 degrees is the maximum recline you"},{"speaker":"You leave at 8","startTime":2985.696,"endTime":2986.295,"body":"can have."},{"speaker":"You leave at 8","startTime":2987.075,"endTime":2987.295,"body":"Why?"},{"speaker":"You leave at 8","startTime":2987.295,"endTime":2988.055,"body":"32 degrees?"},{"speaker":"You leave at 8","startTime":2989.545,"endTime":2995.183,"body":"Turns out, by the way, this is empirically demonstrated in Guantanamo Bay, perfect angle to"},{"speaker":"You leave at 8","startTime":2995.183,"endTime":2995.935,"body":"torture suspects."},{"speaker":"You leave at 8","startTime":2998.115,"endTime":3000.935,"body":"You can't fall asleep, you're lying there and your back's hurting."},{"speaker":"You leave at 8","startTime":3001.395,"endTime":3002.335,"body":"You can't recline."},{"speaker":"You leave at 8","startTime":3002.335,"endTime":3005.701,"body":"There's a guy kicking you in the back of the knee, you know, then suddenly"},{"speaker":"You leave at 8","startTime":3005.701,"endTime":3009.068,"body":"there's shine to bright light in your eye and say chicken or fish, and you"},{"speaker":"You leave at 8","startTime":3009.068,"endTime":3010.415,"body":"say, I confess, I confess everything."},{"speaker":"You leave at 8","startTime":3012.185,"endTime":3012.535,"body":"Right?"},{"speaker":"You leave at 8","startTime":3013.395,"endTime":3014.735,"body":"The seat's a bit close together."},{"speaker":"You leave at 8","startTime":3014.875,"endTime":3016.535,"body":"So if you go too far back, you hit the"},{"speaker":"You leave at 8","startTime":3016.615,"endTime":3017.575,"body":"BroadB, right?"},{"speaker":"You leave at 8","startTime":3017.715,"endTime":3018.615,"body":"That's another reason."},{"speaker":"You leave at 8","startTime":3018.715,"endTime":3020.935,"body":"So can airlines design more comfortable seats?"},{"speaker":"You leave at 8","startTime":3021.955,"endTime":3025.294,"body":"Of course they can, but the problem is, the moment they design a more comfortable"},{"speaker":"You leave at 8","startTime":3025.294,"endTime":3028.634,"body":"seat, the business class person will say, why am I wasting so much money on"},{"speaker":"You leave at 8","startTime":3028.634,"endTime":3029.525,"body":"a business class seat?"},{"speaker":"You leave at 8","startTime":3029.565,"endTime":3030.765,"body":"I, that's perfectly comfortable."},{"speaker":"You leave at 8","startTime":3031.185,"endTime":3033.085,"body":"You want the seat to be uncomfortable enough."},{"speaker":"You leave at 8","startTime":3033.085,"endTime":3036.685,"body":"So business class people don't go move back, but you don't want the seats to"},{"speaker":"You leave at 8","startTime":3036.685,"endTime":3040.285,"body":"be so uncomfortable that they take the bus, the economy, you guys take the bus."},{"speaker":"You leave at 8","startTime":3040.305,"endTime":3042.925,"body":"So there's a narrow gap which they're trying to thread."},{"speaker":"You leave at 8","startTime":3043.105,"endTime":3044.765,"body":"And that's exactly what you do here."},{"speaker":"You leave at 8","startTime":3045.065,"endTime":3048.841,"body":"You try to do it making it as inconvenient as possible for the guys who"},{"speaker":"You leave at 8","startTime":3048.841,"endTime":3052.618,"body":"are doing the 10 so that they will reveal that trying get shit, I'm willing"},{"speaker":"You leave at 8","startTime":3052.618,"endTime":3054.885,"body":"to pay 2000 more for getting a better experience."},{"speaker":"You leave at 8","startTime":3055.915,"endTime":3056.205,"body":"Okay?"},{"speaker":"You leave at 8","startTime":3056.915,"endTime":3061.285,"body":"Alright, so, but let's come to the last idea of credit rationing."},{"speaker":"You leave at 8","startTime":3062.025,"endTime":3066.608,"body":"You are from a banker trying to figure out which borrower will pay you back"},{"speaker":"You leave at 8","startTime":3066.608,"endTime":3067.525,"body":"the money, right?"},{"speaker":"You leave at 8","startTime":3067.525,"endTime":3071.896,"body":"You've lent out, lent out your money to people that borrowed money from you, and"},{"speaker":"You leave at 8","startTime":3071.896,"endTime":3075.685,"body":"you know that there are some people who will never pay you back."},{"speaker":"You leave at 8","startTime":3075.795,"endTime":3077.205,"body":"Some will, some will not."},{"speaker":"You leave at 8","startTime":3077.945,"endTime":3081.971,"body":"So the question is, how do you make a profit given that you will never"},{"speaker":"You leave at 8","startTime":3081.971,"endTime":3083.045,"body":"get your money back?"},{"speaker":"You leave at 8","startTime":3083.425,"endTime":3088.945,"body":"In some cases, what do you think?"},{"speaker":"You leave at 8","startTime":3088.965,"endTime":3090.105,"body":"You can type in what you want,"},{"speaker":"You leave at 8","startTime":3098.325,"endTime":3104.025,"body":"Use a credit score credit, why these are legal ways of doing it."},{"speaker":"You leave at 8","startTime":3104.205,"endTime":3107.725,"body":"But if you take a country like India where there's credit scores are not that"},{"speaker":"You leave at 8","startTime":3107.725,"endTime":3111.246,"body":"easy to get or Kenya or places like that, what do you do if there"},{"speaker":"You leave at 8","startTime":3111.246,"endTime":3112.185,"body":"are no formal things?"},{"speaker":"You leave at 8","startTime":3112.685,"endTime":3116.025,"body":"One possible answer is charge a higher interest rate, right?"},{"speaker":"You leave at 8","startTime":3116.685,"endTime":3122.985,"body":"And that is, well, possibly not that, but yeah, ter terribly usually charge a higher"},{"speaker":"You leave at 8","startTime":3122.985,"endTime":3123.825,"body":"interest rate."},{"speaker":"You leave at 8","startTime":3124.745,"endTime":3128.345,"body":"Interestingly, that is why Stickless got a Nobel prize."},{"speaker":"You leave at 8","startTime":3128.695,"endTime":3131.905,"body":"Stickless said that this is not gonna work."},{"speaker":"You leave at 8","startTime":3132.125,"endTime":3135.345,"body":"The reason is, if I charge a higher interest rate, right?"},{"speaker":"You leave at 8","startTime":3135.715,"endTime":3138.425,"body":"Who's the person who's willing to borrow at that high interest rate?"},{"speaker":"You leave at 8","startTime":3138.805,"endTime":3143.988,"body":"So if I charge 5% interest, maybe everybody will willing to, willing to, you know,"},{"speaker":"You leave at 8","startTime":3143.988,"endTime":3145.025,"body":"borrow from me."},{"speaker":"You leave at 8","startTime":3145.125,"endTime":3149.282,"body":"If I charge 15% interest, only the people who have no desire or intention of"},{"speaker":"You leave at 8","startTime":3149.282,"endTime":3150.945,"body":"paying back will borrow from me."},{"speaker":"You leave at 8","startTime":3151.365,"endTime":3155.897,"body":"So the more you raise your interest rates, the worse the pool gets because only"},{"speaker":"You leave at 8","startTime":3155.897,"endTime":3159.825,"body":"the people who say, forget it, interested 50%, I'm happy to pay it."},{"speaker":"You leave at 8","startTime":3159.825,"endTime":3160.785,"body":"They're not gonna pay you."},{"speaker":"You leave at 8","startTime":3161.445,"endTime":3165.825,"body":"So stickler said, in a situation like that, banks don't charge higher interest rates."},{"speaker":"You leave at 8","startTime":3165.975,"endTime":3168.465,"body":"They just rush in their credit, right?"},{"speaker":"You leave at 8","startTime":3169.205,"endTime":3173.548,"body":"And so that's why you see lots of banks don't make loans because proportion or"},{"speaker":"You leave at 8","startTime":3173.548,"endTime":3175.865,"body":"bad borrowers in the pool is too big."},{"speaker":"You leave at 8","startTime":3176.485,"endTime":3181.401,"body":"In a situation which happened after the financial crisis, you'd lower interest rates, but nobody"},{"speaker":"You leave at 8","startTime":3181.401,"endTime":3182.385,"body":"was lending why?"},{"speaker":"You leave at 8","startTime":3182.385,"endTime":3186.105,"body":"Because nobody knew where the good, uh, the good loans were."},{"speaker":"You leave at 8","startTime":3186.605,"endTime":3188.425,"body":"Nobody knew holding the good loans."},{"speaker":"You leave at 8","startTime":3188.725,"endTime":3190.625,"body":"So everything messed up over there."},{"speaker":"You leave at 8","startTime":3190.685,"endTime":3192.665,"body":"So I'm just going to walk right through this."},{"speaker":"You leave at 8","startTime":3192.805,"endTime":3195.065,"body":"So we put this back."},{"speaker":"You leave at 8","startTime":3195.605,"endTime":3200.987,"body":"So the key part we're trying to say is, asymetic information is everywhere in our"},{"speaker":"You leave at 8","startTime":3200.987,"endTime":3201.705,"body":"lives, right?"},{"speaker":"You leave at 8","startTime":3202.125,"endTime":3206.805,"body":"The people who are hurt by asymetic information are not the people with less information."},{"speaker":"You leave at 8","startTime":3207.035,"endTime":3212.087,"body":"Because the people with less information know this, they know they have less information, so"},{"speaker":"You leave at 8","startTime":3212.087,"endTime":3214.445,"body":"they will never pay the maximum price."},{"speaker":"You leave at 8","startTime":3214.445,"endTime":3216.885,"body":"They'll pay an average price, a price in the middle."},{"speaker":"You leave at 8","startTime":3217.545,"endTime":3219.325,"body":"So who is hurt by this?"},{"speaker":"You leave at 8","startTime":3219.825,"endTime":3223.725,"body":"The ones with more information and who want a price higher than average."},{"speaker":"You leave at 8","startTime":3224.275,"endTime":3225.645,"body":"They're the only ones who are hurt."},{"speaker":"You leave at 8","startTime":3226.025,"endTime":3230.605,"body":"The ones who love asymetic information are the players with more information and inferior product."},{"speaker":"You leave at 8","startTime":3230.605,"endTime":3233.445,"body":"They're hoping to get the average price, but they're much worse than the average."},{"speaker":"You leave at 8","startTime":3234.305,"endTime":3239.405,"body":"So the two solutions we have looked at are signaling where the good players, the"},{"speaker":"You leave at 8","startTime":3239.405,"endTime":3244.505,"body":"people who are su with superior products, they're the ones who use that information, they"},{"speaker":"You leave at 8","startTime":3244.505,"endTime":3247.565,"body":"use signaling to distinguish themselves from the bad borrowers."},{"speaker":"You leave at 8","startTime":3248.195,"endTime":3253.709,"body":"Screening is where the less informed players use screening to distinguish the good from the"},{"speaker":"You leave at 8","startTime":3253.709,"endTime":3254.445,"body":"bad players."},{"speaker":"You leave at 8","startTime":3254.945,"endTime":3258.125,"body":"And that's pretty much the whole lecture."},{"speaker":"You leave at 8","startTime":3263.015,"endTime":3263.485,"body":"Thank you."},{"speaker":"You leave at 8","startTime":3266.555,"endTime":3271.445,"body":"Okay, we'll have a just I guess a, a couple of minutes questions."},{"speaker":"You leave at 8","startTime":3271.445,"endTime":3272.285,"body":"We've got loads."},{"speaker":"You leave at 8","startTime":3272.345,"endTime":3275.525,"body":"Um, what's, uh, let's start with someone online."},{"speaker":"You leave at 8","startTime":3275.675,"endTime":3280.965,"body":"What is the role of corporate governance in mitigating the effect of as symmetric information?"},{"speaker":"You leave at 8","startTime":3282.245,"endTime":3282.765,"body":"Excellent question."},{"speaker":"You leave at 8","startTime":3283.065,"endTime":3287.881,"body":"So, corporate governance, as you know, are these rules which companies use, um, in order"},{"speaker":"You leave at 8","startTime":3287.881,"endTime":3288.845,"body":"to govern themselves."},{"speaker":"You leave at 8","startTime":3288.845,"endTime":3292.606,"body":"So for example, independent board of directors, separation of the role of the CEO of"},{"speaker":"You leave at 8","startTime":3292.606,"endTime":3295.365,"body":"the board and the chairman of the board and so on."},{"speaker":"You leave at 8","startTime":3296.225,"endTime":3300.636,"body":"If you look at this from this perspective, if I don't have an independent board"},{"speaker":"You leave at 8","startTime":3300.636,"endTime":3304.165,"body":"and I don't have a separate CEO and chairman, what will happen?"},{"speaker":"You leave at 8","startTime":3305.045,"endTime":3309.525,"body":"A shareholder will say, this firm is probably not a great firm."},{"speaker":"You leave at 8","startTime":3309.685,"endTime":3312.765,"body":"I won't invest in this firm, so I will be able to raise less money."},{"speaker":"You leave at 8","startTime":3313.065,"endTime":3317.493,"body":"So in a way, a superior firm, a firm with good corporate governance is basically"},{"speaker":"You leave at 8","startTime":3317.493,"endTime":3320.445,"body":"saying, I'm taking the cost of having an independent auditor."},{"speaker":"You leave at 8","startTime":3320.825,"endTime":3322.685,"body":"I'm having an independent board of director."},{"speaker":"You leave at 8","startTime":3322.685,"endTime":3326.612,"body":"This is all costly, but I'm willing to incur those costs so I can prove"},{"speaker":"You leave at 8","startTime":3326.612,"endTime":3328.445,"body":"to you that I'm a good company."},{"speaker":"You leave at 8","startTime":3328.825,"endTime":3330.325,"body":"So it's exactly information."},{"speaker":"You leave at 8","startTime":3330.325,"endTime":3330.965,"body":"Asymmetric."},{"speaker":"You leave at 8","startTime":3331.055,"endTime":3331.405,"body":"Thank"},{"speaker":"You leave at 8","startTime":3331.405,"endTime":3331.485,"body":"You."},{"speaker":"You leave at 8","startTime":3331.695,"endTime":3334.485,"body":"Let's take a question from theologist gentlemen here, please."},{"speaker":"You leave at 8","startTime":3334.485,"endTime":3334.805,"body":"Thank."},{"speaker":"You leave at 8","startTime":3338.655,"endTime":3340.125,"body":"Hello, my name's Martin White."},{"speaker":"You leave at 8","startTime":3340.225,"endTime":3342.485,"body":"I'm a director of the UK Shareholders Association."},{"speaker":"You leave at 8","startTime":3343.045,"endTime":3347.005,"body":"I, I think I'd like to raise a situation that I'm not sure does suit"},{"speaker":"You leave at 8","startTime":3347.005,"endTime":3348.325,"body":"the people with less information."},{"speaker":"You leave at 8","startTime":3348.865,"endTime":3354.251,"body":"Uh, an extremely socially important instance of asymmetric information is a position of the general"},{"speaker":"You leave at 8","startTime":3354.251,"endTime":3356.765,"body":"public in relation to the financial sector."},{"speaker":"You leave at 8","startTime":3357.545,"endTime":3361.076,"body":"How do you possibly know who to trust if the agents and providers don't in"},{"speaker":"You leave at 8","startTime":3361.076,"endTime":3362.725,"body":"law have a fiduciary duty to you?"},{"speaker":"You leave at 8","startTime":3363.305,"endTime":3364.565,"body":"So what would you like to say about that?"},{"speaker":"You leave at 8","startTime":3366.185,"endTime":3366.605,"body":"That's"},{"speaker":"You leave at 8","startTime":3366.605,"endTime":3368.205,"body":"A, that's a very good question as well."},{"speaker":"You leave at 8","startTime":3368.305,"endTime":3371.833,"body":"So, as a member of the general public and you're trying to buy shares, this"},{"speaker":"You leave at 8","startTime":3371.833,"endTime":3373.245,"body":"is a crucial part of information."},{"speaker":"You leave at 8","startTime":3373.245,"endTime":3373.885,"body":"Asymmetric."},{"speaker":"You leave at 8","startTime":3374.105,"endTime":3377.245,"body":"You don't know whether these guys are actually telling the truth or not."},{"speaker":"You leave at 8","startTime":3377.865,"endTime":3382.005,"body":"So there are some things that are mandated by law, so that applies to everybody."},{"speaker":"You leave at 8","startTime":3382.185,"endTime":3386.199,"body":"So that cannot distinguish a good person, a good company from a bad company, but"},{"speaker":"You leave at 8","startTime":3386.199,"endTime":3387.805,"body":"you can look for other factors."},{"speaker":"You leave at 8","startTime":3387.985,"endTime":3393.045,"body":"For example, you can say in America, there was a paper which was written by,"},{"speaker":"You leave at 8","startTime":3393.045,"endTime":3398.106,"body":"I think it was David Mack at NYU, but what he looked at was where"},{"speaker":"You leave at 8","startTime":3398.106,"endTime":3400.805,"body":"the company holds its annual general board meetings."},{"speaker":"You leave at 8","startTime":3401.215,"endTime":3406.127,"body":"Turns out the more remote the area is, the more difficult the areas get to"},{"speaker":"You leave at 8","startTime":3406.127,"endTime":3411.04,"body":"the worse is the financial results of the company because they don't want their shareholders"},{"speaker":"You leave at 8","startTime":3411.04,"endTime":3413.005,"body":"flying, coming in, asking awkward questions."},{"speaker":"You leave at 8","startTime":3413.305,"endTime":3418.613,"body":"So just buying shares of companies with easily accessible, you know, AGMs versus really difficult"},{"speaker":"You leave at 8","startTime":3418.613,"endTime":3423.921,"body":"to access AGMs is an easy way of saying that's a well governed company that"},{"speaker":"You leave at 8","startTime":3423.921,"endTime":3426.045,"body":"may not be so well governed."},{"speaker":"You leave at 8","startTime":3426.345,"endTime":3429.045,"body":"Let me, um, ask a couple of more people and then come back over there."},{"speaker":"You leave at 8","startTime":3430.715,"endTime":3432.045,"body":"Yeah, over there."},{"speaker":"You leave at 8","startTime":3435.035,"endTime":3435.325,"body":"Yeah."},{"speaker":"You leave at 8","startTime":3435.325,"endTime":3435.885,"body":"Good afternoon."},{"speaker":"You leave at 8","startTime":3435.975,"endTime":3436.765,"body":"Thank you very much."},{"speaker":"You leave at 8","startTime":3436.985,"endTime":3438.045,"body":"My name is Lu."},{"speaker":"You leave at 8","startTime":3440.265,"endTime":3446.405,"body":"Um, as regards the anger aspect of it."},{"speaker":"You leave at 8","startTime":3446.905,"endTime":3447.325,"body":"Mm-Hmm."},{"speaker":"You leave at 8","startTime":3447.365,"endTime":3455.285,"body":"\u003caffirmative\u003e, I like you talked about the, um, smart worker and the hard worker in"},{"speaker":"You leave at 8","startTime":3455.285,"endTime":3457.925,"body":"terms of the anger issue."},{"speaker":"You leave at 8","startTime":3458.965,"endTime":3462.125,"body":"I believe that anger is natural."},{"speaker":"You leave at 8","startTime":3463.225,"endTime":3463.725,"body":"Mm-Hmm, \u003caffirmative\u003e."},{"speaker":"You leave at 8","startTime":3463.725,"endTime":3470.645,"body":"And if someone gets you angry, you show your attitude reasonably."},{"speaker":"You leave at 8","startTime":3470.745,"endTime":3477.125,"body":"Mm-Hmm, \u003caffirmative\u003e more, especially if it is intentional, but in the other way around anger."},{"speaker":"You leave at 8","startTime":3477.665,"endTime":3483.955,"body":"Mm-Hmm, \u003caffirmative\u003e, if you are angry and you don't show it to me on my"},{"speaker":"You leave at 8","startTime":3483.955,"endTime":3490.245,"body":"little knowledge of understanding, I believe it increases all the required diseases they're talking of."},{"speaker":"You leave at 8","startTime":3490.505,"endTime":3496.108,"body":"Either hypertension, because when you gets me angry and I go home and I don't"},{"speaker":"You leave at 8","startTime":3496.108,"endTime":3500.965,"body":"react, I'll be thinking over it and it gets me more personally angry."},{"speaker":"You leave at 8","startTime":3500.965,"endTime":3501.445,"body":"Mm-Hmm, \u003caffirmative\u003e."},{"speaker":"You leave at 8","startTime":3501.445,"endTime":3501.845,"body":"Thank you."},{"speaker":"You leave at 8","startTime":3503.155,"endTime":3503.445,"body":"Okay."},{"speaker":"You leave at 8","startTime":3503.705,"endTime":3505.285,"body":"That's a excellent question."},{"speaker":"You leave at 8","startTime":3505.705,"endTime":3509.245,"body":"The key part about anger working as a signal is the fact that it's costly."},{"speaker":"You leave at 8","startTime":3509.545,"endTime":3511.245,"body":"It has to, it it affects your health."},{"speaker":"You leave at 8","startTime":3511.665,"endTime":3515.25,"body":"If it did not affect your health, it wouldn't work as a signal because everybody"},{"speaker":"You leave at 8","startTime":3515.25,"endTime":3516.445,"body":"would pretend to get angry."},{"speaker":"You leave at 8","startTime":3516.705,"endTime":3521.401,"body":"The ideal, the ideal thing for you to be is to show outwardly that you're"},{"speaker":"You leave at 8","startTime":3521.401,"endTime":3524.845,"body":"super angry, but inside you're as cool as a cucumber, right?"},{"speaker":"You leave at 8","startTime":3524.995,"endTime":3528.205,"body":"Unfortunately, most people are terrible actors."},{"speaker":"You leave at 8","startTime":3528.555,"endTime":3531.045,"body":"It's very difficult to get that across."},{"speaker":"You leave at 8","startTime":3531.075,"endTime":3534.77,"body":"Have you, if you have kids, have you ever come up with a scenario where"},{"speaker":"You leave at 8","startTime":3534.77,"endTime":3538.465,"body":"your kid has done something you are amused by, but you have to show that"},{"speaker":"You leave at 8","startTime":3538.465,"endTime":3539.205,"body":"you are angry."},{"speaker":"You leave at 8","startTime":3540.545,"endTime":3542.365,"body":"How do you think your kid really buys that?"},{"speaker":"You leave at 8","startTime":3542.365,"endTime":3543.485,"body":"You're angry at that point?"},{"speaker":"You leave at 8","startTime":3543.485,"endTime":3545.525,"body":"You're kind of like, don't ever do that again."},{"speaker":"You leave at 8","startTime":3545.795,"endTime":3550.325,"body":"When you're kind of smiling, it's very difficult to fake anger."},{"speaker":"You leave at 8","startTime":3551.025,"endTime":3555.556,"body":"So, as human beings, when you get angry, the key part is we are giving"},{"speaker":"You leave at 8","startTime":3555.556,"endTime":3556.765,"body":"up control of something."},{"speaker":"You leave at 8","startTime":3556.785,"endTime":3560.525,"body":"We are saying, I'm not using rational calculations or NPV anymore."},{"speaker":"You leave at 8","startTime":3560.825,"endTime":3562.125,"body":"You don't do what I'm gonna do."},{"speaker":"You leave at 8","startTime":3562.985,"endTime":3564.005,"body":"I'm gonna do something drastic."},{"speaker":"You leave at 8","startTime":3564.225,"endTime":3568.353,"body":"I'm going, maybe I'll regret it later, but at the moment, I'm, I'm going to"},{"speaker":"You leave at 8","startTime":3568.353,"endTime":3570.005,"body":"give into my worst, uh, impulses."},{"speaker":"You leave at 8","startTime":3570.265,"endTime":3571.565,"body":"That's why it works as a signal."},{"speaker":"You leave at 8","startTime":3571.715,"endTime":3575.805,"body":"It's a costly, but you know, the cost is the signal."},{"speaker":"You leave at 8","startTime":3576.705,"endTime":3578.605,"body":"Hey, thanks for Alex was very useful."},{"speaker":"You leave at 8","startTime":3578.945,"endTime":3580.205,"body":"Uh, my name is Manny."},{"speaker":"You leave at 8","startTime":3580.245,"endTime":3581.125,"body":"I work as a doctor."},{"speaker":"You leave at 8","startTime":3581.845,"endTime":3587.695,"body":"I was wondering how this, um, concept of financial asymmetrical information applies in healthcare as"},{"speaker":"You leave at 8","startTime":3587.695,"endTime":3588.085,"body":"well."},{"speaker":"You leave at 8","startTime":3588.515,"endTime":3592.605,"body":"Well, in life or situations, people are willing to pay anything, basically."},{"speaker":"You leave at 8","startTime":3592.665,"endTime":3597.107,"body":"So how do we figure out in those conditions, especially in a private healthcare systems,"},{"speaker":"You leave at 8","startTime":3597.107,"endTime":3600.365,"body":"like in the United States or in India, countries like that."},{"speaker":"You leave at 8","startTime":3600.585,"endTime":3601.005,"body":"Mm-Hmm."},{"speaker":"You leave at 8","startTime":3601.045,"endTime":3603.005,"body":"\u003caffirmative\u003e that's in the healthcare system."},{"speaker":"You leave at 8","startTime":3603.005,"endTime":3607.074,"body":"Asymmetric information is very big, mainly because of the fact that the only people who"},{"speaker":"You leave at 8","startTime":3607.074,"endTime":3609.245,"body":"know something about it is your doctor, right?"},{"speaker":"You leave at 8","startTime":3609.825,"endTime":3614.165,"body":"Um, but there's another group of people as well, and they're the health insurance companies."},{"speaker":"You leave at 8","startTime":3614.545,"endTime":3618.405,"body":"So the health insurance companies don't want you if you're ill, right?"},{"speaker":"You leave at 8","startTime":3619.145,"endTime":3620.125,"body":"You are loss for them."},{"speaker":"You leave at 8","startTime":3620.705,"endTime":3624.572,"body":"So essentially they put into place a lot of preexisting conditions and a whole bunch"},{"speaker":"You leave at 8","startTime":3624.572,"endTime":3627.925,"body":"of rules just to prevent the bad guys from getting into that pool."},{"speaker":"You leave at 8","startTime":3628.075,"endTime":3629.765,"body":"Then the bad guys are the people who are ill."},{"speaker":"You leave at 8","startTime":3629.875,"endTime":3631.085,"body":"They don't want ill people."},{"speaker":"You leave at 8","startTime":3631.475,"endTime":3633.005,"body":"They will ensure you when you're healthy."},{"speaker":"You leave at 8","startTime":3633.665,"endTime":3640.085,"body":"So, um, from that perspective, that's the financial part of health, right?"},{"speaker":"You leave at 8","startTime":3640.305,"endTime":3641.605,"body":"So how do you pay for this?"},{"speaker":"You leave at 8","startTime":3642.105,"endTime":3646.455,"body":"And you can see that's when the, when the health insurance company is trying to"},{"speaker":"You leave at 8","startTime":3646.455,"endTime":3649.645,"body":"figure out ways to, to say, are you healthy or not?"},{"speaker":"You leave at 8","startTime":3649.865,"endTime":3654.565,"body":"In the old days, um, before Sky when Skyscape was started invented, but there were"},{"speaker":"You leave at 8","startTime":3654.565,"endTime":3659.265,"body":"no elevators, a lot of people would put the insurance offices on the top of"},{"speaker":"You leave at 8","startTime":3659.265,"endTime":3660.205,"body":"very tall buildings."},{"speaker":"You leave at 8","startTime":3660.345,"endTime":3663.756,"body":"If you're good enough to get to the top of that building, you could get"},{"speaker":"You leave at 8","startTime":3663.756,"endTime":3666.485,"body":"insurance \u003claugh\u003e, you know, so if you couldn't get there, tough luck."},{"speaker":"You leave at 8","startTime":3666.485,"endTime":3667.565,"body":"You're not gonna get insurance."},{"speaker":"You leave at 8","startTime":3668.035,"endTime":3674.11,"body":"What would be your analysis for something like the thas Water, for example, and how,"},{"speaker":"You leave at 8","startTime":3674.11,"endTime":3675.325,"body":"how that functions?"},{"speaker":"You leave at 8","startTime":3675.545,"endTime":3681.359,"body":"And there are lots and lots of other possible examples, but I'd be interested on"},{"speaker":"You leave at 8","startTime":3681.359,"endTime":3683.685,"body":"your analysis on those things, right?"},{"speaker":"You leave at 8","startTime":3684.385,"endTime":3689.132,"body":"So one of the things which, um, we talk about in economics, that's a good,"},{"speaker":"You leave at 8","startTime":3689.132,"endTime":3689.765,"body":"great question."},{"speaker":"You leave at 8","startTime":3689.985,"endTime":3694.062,"body":"One of the things we talk about economics is this whole concept of are you"},{"speaker":"You leave at 8","startTime":3694.062,"endTime":3695.965,"body":"able to capture the profits from anything?"},{"speaker":"You leave at 8","startTime":3696.145,"endTime":3699.685,"body":"You know, it goes back to that concept of explicit versus implicit contracts."},{"speaker":"You leave at 8","startTime":3700.185,"endTime":3704.631,"body":"So if you are a company and you expect to be here for the long"},{"speaker":"You leave at 8","startTime":3704.631,"endTime":3708.485,"body":"term, you have a superior product, you want to guard your reputation, right?"},{"speaker":"You leave at 8","startTime":3708.825,"endTime":3712.773,"body":"But if you're a company that has been newly privatized, you don't know if the"},{"speaker":"You leave at 8","startTime":3712.773,"endTime":3715.405,"body":"government is going to renationalize you again or something else."},{"speaker":"You leave at 8","startTime":3715.865,"endTime":3720.078,"body":"You have a short window of opportunity to extract whatever you can from the company"},{"speaker":"You leave at 8","startTime":3720.078,"endTime":3722.045,"body":"before the company goes, you know, wherever."},{"speaker":"You leave at 8","startTime":3722.665,"endTime":3727.059,"body":"So one possibility, I'm not saying this is true, but there's definitely a possibility, is"},{"speaker":"You leave at 8","startTime":3727.059,"endTime":3727.645,"body":"very simple."},{"speaker":"You leave at 8","startTime":3728.185,"endTime":3732.049,"body":"If you are the manager of 10 times water, you've just become part of the"},{"speaker":"You leave at 8","startTime":3732.049,"endTime":3732.565,"body":"privatized utility."},{"speaker":"You leave at 8","startTime":3732.865,"endTime":3738.251,"body":"You give yourself massive bonuses, you give all the money out to the shareholders, skimp"},{"speaker":"You leave at 8","startTime":3738.251,"endTime":3741.125,"body":"on infrastructure, but that creates a problem itself."},{"speaker":"You leave at 8","startTime":3741.155,"endTime":3745.818,"body":"That eventually, you know the company is going to go much worse, but that's because"},{"speaker":"You leave at 8","startTime":3745.818,"endTime":3750.481,"body":"you're not guaranteed that long period of time when if something goes wrong, you are"},{"speaker":"You leave at 8","startTime":3750.481,"endTime":3751.725,"body":"liable for it, right?"},{"speaker":"You leave at 8","startTime":3751.725,"endTime":3754.012,"body":"It's like, I don't know who's gonna be in charge of it five years from"},{"speaker":"You leave at 8","startTime":3754.012,"endTime":3754.165,"body":"now."},{"speaker":"You leave at 8","startTime":3754.165,"endTime":3755.725,"body":"Let me pay myself now and walk away."},{"speaker":"You leave at 8","startTime":3756.105,"endTime":3758.445,"body":"That's in, again, information asymmetry there."},{"speaker":"You leave at 8","startTime":3759.915,"endTime":3763.89,"body":"Well, I'm afraid we're running out of time, but thank you very much for this"},{"speaker":"You leave at 8","startTime":3763.89,"endTime":3764.685,"body":"fascinating lecture for."}]}