incomplete information

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A situation in which economic agents do not know all relevant information. It is helpful to distinguish public information from private information. All agents can be assumed to know, or can learn if they choose to do so, information that is public. Each agent knows their own private information. This cannot be observed by other agents but can only be deduced through observation of actions based on this information. In a game of strategy with incomplete information participants construct a probability distribution over realizations of private information they do not possess in order to compute their optimal strategy. In some cases the lack of knowledge of other agents' private information is not relevant. For example, in a competitive economy a consumer does not need to know the preferences or endowments of other consumers: market prices are the only relevant information for decisions, and these are assumed to be public knowledge.

Subjects: Economics.

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