Information, Knowledge, and Uncertainty

Information, knowledge, and uncertainty (JEL D8) analyses how imperfect and asymmetric information shapes economic behaviour and markets.

Scope

It covers decision under uncertainty, asymmetric information, adverse selection, signalling and screening, and the economics of information.

Sub-topics

• General
• Criteria for Decision-Making under Risk and Uncertainty
• Asymmetric and Private Information • Mechanism Design
• Search • Learning • Information and Knowledge • Communication • Belief • Unawareness
• Expectations • Speculations
• Network Formation and Analysis: Theory
• Economics of Contract: Theory
• Neuroeconomics
• Other

Core questions

• How do agents decide under uncertainty?
• How does asymmetric information affect markets?
• How do signalling and screening resolve information problems?
• What is the value of information?

Key concepts

• Asymmetric information
• Adverse selection
• Moral hazard
• Signalling
• Screening
• Decision under uncertainty

Key theories

Adverse selection

Akerlof showed asymmetric information about quality can unravel markets ('lemons').

Signalling

Spence showed how informed parties can signal hidden quality (e.g., education).

History

The economics of information developed in the 1970s (Akerlof, Spence, Stiglitz), transforming the analysis of markets with hidden information and quality.

Debates

How well do markets handle information failures?

Whether signalling, screening, and reputation overcome information asymmetries or leave markets inefficient.

Key figures

• George Akerlof
• Michael Spence

Seminal works

• akerlof-1970
• spence-1973

Frequently asked questions

What is adverse selection?

A market failure where asymmetric information leads worse-quality goods or risks to dominate, as in Akerlof's 'lemons' market.