Loan Decisions and Asymmetric Information
Imagine two entrepreneurs, Alex and Ben, who independently develop identical business plans for a new tech startup. Both plans are evaluated by experts and deemed to have a very high probability of success and profitability. Alex comes from a wealthy family and has substantial personal assets to offer as security for a loan. Ben has no personal assets. Alex secures a loan from a bank, while Ben is denied by the same bank. From the lender's perspective, explain the economic reasoning behind this decision, even though both projects were equally promising.
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The Economy 2.0 Microeconomics @ CORE Econ
Ch.10 Market successes and failures: The societal effects of private decisions - The Economy 2.0 Microeconomics @ CORE Econ
Introduction to Microeconomics Course
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