Information Economics: Decoding Data, Mastering Information Economics for Informed Decisions

By Fouad Sabry

What is Information Economics

The study of how information and information systems influence an economy and the decisions that are made within it is the focus of the field of microeconomics known as information economics, often known as the economics of information.

How you will benefit

(I) Insights, and validations about the following topics:

Chapter 1: Information economics

Chapter 2: Economics

Chapter 3: Market failure

Chapter 4: Index of economics articles

Chapter 5: Moral hazard

Chapter 6: George Akerlof

Chapter 7: The Market for Lemons

Chapter 8: Contract theory

Chapter 9: Adverse selection

Chapter 10: Information asymmetry

Chapter 11: Experimental economics

Chapter 12: Efficiency wage

Chapter 13: Personnel economics

Chapter 14: Quarterly Journal of Economics

Chapter 15: Market (economics)

Chapter 16: Screening (economics)

Chapter 17: Credit rationing

Chapter 18: Georges Dionne (professor)

Chapter 19: Implicit contract theory

Chapter 20: History of microeconomics

Chapter 21: Economic transparency

(II) Answering the public top questions about information economics.

(III) Real world examples for the usage of information economics in many fields.

(IV) Rich glossary featuring over 1200 terms to unlock a comprehensive understanding of information economics. (eBook only).

Who will benefit

Professionals, undergraduate and graduate students, enthusiasts, hobbyists, and those who want to go beyond basic knowledge or information for any kind of information economics.

• Language: English
• Publisher: One Billion Knowledgeable
• Release date: Dec 18, 2023
• ISBN: 9791222070223

Book preview

Chapter 1: Information economics

Information economics or the economics of information is the subfield of microeconomics that studies the impact of information and information systems on economies and economic decisions. It includes scientific and exhaustive knowledge as special cases. The initial discoveries in information economics concerned the economics of information products.

Recent decades have witnessed significant advancements in the study of information asymmetries.

Economic analysis begins with the observation that information has economic value because it enables individuals to make decisions that yield greater expected payoffs or expected utility than decisions made in the absence of information. The emerging field of data valuation seeks to comprehend and quantify the economic properties of information and data.

Much of the early literature in information economics was inspired by Friedrich Hayek's The Use of Knowledge in Society on the use of the price mechanism to allow information decentralization and the efficient use of resources.

Information asymmetry indicates that the parties in an interaction have different information, such as one party having more or superior information than the other. Expecting the opposing party to have superior information can result in a shift in behavior. The party with less information may attempt to prevent the other party from taking advantage of him. This shift in behavior could result in inefficiency. Examples of this issue include adverse or advantageous selection and moral hazard. There are two fundamental solutions for adverse selection: signaling and screening.

Moral hazard includes a partnership between a principal and an agent and occurs when the agent may change their behavior or actions after a contract has been finalized, resulting in negative outcomes for the principal. Frequently, insurance policies include a waiting period clause to prevent agents from altering their attitude.

Michael Spence introduced the concept of signaling. He proposed that in situations involving information asymmetry, individuals can signal their type, thereby credibly transferring information to the other party and eliminating the asymmetry.

This concept was initially studied in the context of job hunting. An employer is seeking to hire a new employee with learning skills. Obviously, all prospective employees will claim to be adept at learning, but only they can determine whether or not this is true. This is an instance of information asymmetry.

Spence argued that college attendance is a credible indicator of the capacity to learn. Assuming that skilled learners can complete college more quickly than unskilled learners, skilled learners signal their skill to prospective employers by enrolling in college. This is the case even if they did not learn anything in school and school served only as a signal. This is effective because the action they took (going to school) was easier for those who possessed the skill being signaled (a capacity for learning).

Joseph E. Stiglitz was the originator of the screening theory. This allows the underinformed party to coerce the other party into divulging their information. They are able to present a menu of options in such a way that the optimal selection for the other party is determined by their private information. By making a specific decision, the other party reveals that he possesses information that makes that decision the best option. For instance, a theme park may wish to sell more expensive tickets to customers who value their time more than their money. Customers will all claim to have a low willingness to pay if asked about their willingness to pay. However, the amusement park may offer both priority and regular tickets, with priority tickets permitting riders to bypass lines and being more expensive. This will encourage customers with a higher value of time to purchase priority tickets, revealing their type.

Variations in the availability and precision of information can generate risk and