3.4 Information Gaps Flashcards
1
Q
What is information failure?
A
When people have inaccurate or incomplete data so make nonoptimal choices
2
Q
Causes of info failure?
A
- Misunderstanding true costs
- Complex info
- Misleading info
- Lack of awareness
3
Q
What are information gaps?
A
When people have incomplete or inaccurate data so make potentially wrong choices
4
Q
What is asymmetric information?
A
Imbalance of information between buyers and sellers that can distort choices
5
Q
What is the Market for Lemons?
A
- George Akerlof
- Incentive to sell lemons (dud cars) and hold back peaches
- Second-hand car market
6
Q
Key aspects of asymmetric information?
A
1) Moral Hazard (insured consumers take higher risk)
2) Adverse Selection (those purchasing or selling are deceitful)
7
Q
What is bounded rationality?
A
Idea that decision-making cannot be entirely rational due to complexity of info
8
Q
Info gap diagram?
A
