information gaps Flashcards
1
Q
What are the two causes of information failure
A
Lack of information
Asymmetric information
2
Q
What is asymmetric information
A
One party has more information than another
3
Q
An example where asymmetric information is shown
A
Second-hand markets - seller has more info about the state of the good
4
Q
How does an insurance market have asymmetric information
A
The buyer knows how dangerous they are
Incentive too under-report
May lead to moral hazard - The insurance company is bearing the risk so individual may be more reckless
5
Q
What does information failure lead to
A
Irrational decisions
