Why do second‑hand cars sell for so much less than new ones, even when they look perfect? Why do we keep putting off important tasks—like saving for retirement—even though we know it will cost us later? Standard economic models often assume everyone has perfect information and makes rational, perfectly calculated decisions. This chapter relaxes those assumptions. We will see how hidden information and quirks of human psychology can lead to market breakdowns, and how clever policy design can help people make better choices without taking away their freedom.