1.3.4 Flashcards
Information gaps
Asymmetric information
Where buyers and sellers have different amounts of information with one group having more information than the other
Imperfect information
Where buyers or sellers both lack the information to make an informed decision
Moral hazard
Where an economic agent makes a decision in their own best interest knowing there are potential adverse risks and if problems occur the costs will fall on other economic agents
Principal-agent problem
When the goals of principals (those standing to gain or lose from a decision) are different from agents (those making decisions on behalf of principals) eg. managers (agents) and shareholders (principals)
Lack of information
Consumers may not have all the information they need to make an informed decision about a purchase. This could be because the information is not available, or because it is too difficult or complex to understand.
Misleading information
Consumers may be given misleading information about a product or service. This could be done intentionally by the seller, or unintentionally due to a lack of knowledge or understanding.
Hidden information
Consumers may not be aware of all the costs associated with a purchase. This could include hidden fees, taxes, or other charges.
Unreliable information
Consumers may be given information that is not accurate or up-to-date. This could be because the information is outdated, or because it was not obtained from a reliable source.
Information gaps
Exist when either the buyer or seller does not have access to the information needed for them to make a fully-informed decision.
Availability bias
A cognitive shortcut that relies on what immediately comes to mind to make quick decisions and judgments. It might also be based on personal experience or fuelled by outside sources such as news outlets or the internet.
