Chapter

Perfect Information and Imperfect Markets

Mia de Kuijper

in Profit Power Economics

Published in print October 2009 | ISBN: 9780195171631
Published online February 2010 | e-ISBN: 9780199871353 | DOI: http://dx.doi.org/10.1093/acprof:oso/9780195171631.003.0005
 Perfect Information and Imperfect Markets

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The second face of transparency, namely the inevitable trend toward the rise in the interdependence of decision making that comes with perfect information, is causing old economic models to fail. Perfect information does not lead to perfect markets, as many real-world observations and practical examples can confirm. In order to make sense of a pile of conflicting theories and observations, the author realized that she had to start with investigating what the actual consequences of perfect information might be. Why and how, e.g., could extraordinary profits be feasible even in the face of perfect information? In so doing, the book really asked whether it was economic theory itself that needed to be rethought. This chapter explains that there is indeed a serious flaw at the heart of mainstream classical economics. Economic theory does need to be rethought in the light of perfect information and the interdependent decision making that it causes.

Keywords: faces of transparency; interdependence of decision making; economic models; fail; flaw; perfect information; perfect markets; real-world observations; mainstream classical economics; economic theory

Chapter.  3272 words. 

Subjects: Macroeconomics and Monetary Economics

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