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 economics
Information:
Problems and ways to deal with them:
Economics of information, or information economics, belongs to the field of microeconomics and it studies the importance of information in Economics. The neoclassical theory was developed around the assumptions of perfect information and the absence of uncertainty, and although this simplification allows modelling the reality, it is unrealistic. Economics of information is the result of an alteration in the usual neoclassical analysis, and it integrates the posibility of imperfect information that will result in asymmetric information.
Asymmetric information occurs in those situations in which an agent has greater information, either before or after, the interaction between agents happens. The study of these situations is of special relevance mainly to avoid the conflicts that will arise from them it. If an agent has inside information previous to the economic relations, ex-ante assymetry, adverse selection may occur. If the inside information is after the economic relations, post-ante, it will beconsidered moral hazard.
The importance and value of information within economics is huge. It eliminates risk and uncertainty, and it makes it possible to take better choices that will report higher yields. The less risk and uncertainty there is, the higher the utility will be valued.
The study of economics of information is key for many economic fields including game theory, agency theory or contract theory.
