Summary
Information economics, also known as economics of information, is the study of how different degrees of information affect economic analysis. Since it’s usually studied as a part of microeconomic theory, information economics mainly deal with micro problems. In this Learning Path we learn the basics about information economics, especially about adverse selection and moral hazard.Information:
- Complete information
- Perfect information
- Asymmetric information
Problems and ways to deal with them:
The perfection of information is an important notion in game theory when considering sequential and simultaneous games. It is a key concept when analysing the possibility of punishment strategies in collusion agreements.
Perfect information refers to the fact that each player has the same information that would be available at the end of the game. This is, each player knows or can see other player’s moves. A good example would be chess, where ech player sees the other player’s pieces on the board.
Imperfect information appears when decisions have to be made simultaneously, and players need to balance all possible outcomes when making a decision. A good example of imperfect information games is a card game where each player’s card are hidden from the rest of the players.
