Information, knowledge, and uncertainty is a loose grouping of terms used to refer to a variety of topics in economics relating to the value of information, the effects of information on economic decisions and outcomes, and the strategic implications when economic agents have differing information. This article surveys the many relevant subtopics, including inference, expected utility, asymmetric information, contract theory, principal-agent problems, network effects, innovation, patents, non-rival goods, search theory, global games, and common knowledge. The terms information economics and the economics of information are also used to encompass some of these concepts.
Information economics, or "the economics of information," is a broad term used to refer to a variety of topics in economics relating to the value of information, the effects of information on economic decisions and outcomes, and the strategic implications when economic agents have differing information. This article surveys the many aspects of the economics of information, including inference, expected utility, asymmetric information, contract theory, principal-agent problems, network effects, innovation, patents, non-rival goods, search theory, global games, and common knowledge.
- Hi Tobacman, I've worked from your first sentence to an alternative Lead 2B on the Talk:Information economics page. I try to group related topics as much as possible, and I think we can break it down to four main themes that are more or less chronological.
Within economics, "information" refers most commonly to someone's beliefs about characteristics of other individuals or about the state of the world. In this sense, someone's information is a probability distribution; better information is equivalent to less uncertainty. For example, an employer's information about a job candidate could be that with probability 1/2 the candidate would be a reliable worker. Conducting an interview and calling references could provide signals to the employer, causing her make inferences and update her expectations.
Topics relating to information, knowledge, and uncertainty in economics
Asymmetries in information
In some transactions, one party has more or better information than the other, and this can cause the transactions to go awry. These problems are often called "principal-agent problems," and their modern study is generally described as contract theory. The problems can be classed into two types: ex ante informational asymmetries result in adverse selection, while ex post asymmetries result in moral hazard.
In 2001, the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel was awarded to George Akerlof, Michael Spence, and Joseph E. Stiglitz "for their analyses of markets with asymmetric information."
The economics of information goods
Buying and selling information is not the same as buying and selling most other goods. Information is non-rival, which means that consuming information doesn't mean that someone else cannot also consume it. In addition, as a type of intellectual property, information generally has zero marginal cost once discovered.
Complementarities between the use of products embodying intellectual property induces network effects.
- We might want to leave this topic out. Global games in particular are very tangentially related to our other themes (regardless of whether the article is "information economics" or "JEL D8". Morris and Shin have a paper 'Heterogeneity and uniqueness in interaction games' showing that private information, per se, is not crucial for global games results. Many alternative forms of heterogeneity can be used to derive global-games-type uniqueness theorems. --Rinconsoleao 22:46, 5 August 2007 (UTC)
- Nobel Prize website
- George Stigler, "The Economics of Information," Journal of Political Economy, 1961.