It’s time to expand your decision-making toolkit to account for a complication you run into every day: You won’t always have all the information you need to make a perfect decision.
We’ll introduce a framework you can use to make decisions when you’re uncertain about the consequences of your choices. We’ll discover the critical role the financial sector plays in reducing and redistributing risk. And we’ll explore the psychological biases that can distort people’s choices, and show you how to reduce their effects.
Then we’ll move on to a related problem: What happens when you know something that others don’t? Or they know something you don’t? We’ll see that these information asymmetries create a fog of mistrust. Is that used car listed on Craigslist because the owner needs to sell it, or because they know it’s a lemon? Your insurer will wonder whether you’re buying insurance because you’re expecting to make a costly claim. And your boss will wonder whether you’re working hard, or hardly working. These problems can lead markets to misfire or even collapse entirely. You know a lot more about your health than anyone else does, which is why we’ll see that these issues are a particularly big deal in the health care market.