Information

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Updated: Aug 20, 2021

1. The data available to individuals, firms, or governments at the time economic decisions have to be taken. Information in this sense refers to economic data and the collection, use, and interpretation of those data. 2. The knowledge possessed by economic agents. An economy is described by the preferences and endowments of its consumers, the technology of its firms, and the prices and characteristics of its products. Consumers, firms, and governments take actions. What matters for the attainment of economic efficiency is who knows which parts of the total description of the economy. The economy has symmetric information if all agents are equally informed or equally uninformed about relevant facts. What information is relevant changes with the economic environment. In a competitive economy a consumer only needs to know their own preferences, product characteristics, and prices in order to trade. Information about the preferences of other consumers or about firms is irrelevant. The competitive equilibrium will be Pareto efficient if information is symmetric. There is asymmetric information when some agents possess more of the relevant information than others. For example, a consumer selling a secondhand car may have better knowledge of its qualities than a potential purchaser. Asymmetric information is a cause of market failure. Contract theory has found it useful to distinguish between public information and private information. Public information is observable and verifiable, so can be a determinant of the pay-off in an incentive contract. Private information cannot be observed but only inferred from actions. An incentive contract cannot be conditioned on private information. In game theory the distinction is made between games with complete information—all participants know the entire structure of the game and games with incomplete information — not all information about the game is known. See also price-sensitive information.

Reference: Oxford Press Dictonary of Economics, 5th edt.



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James Knight
Editor of Education
James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.