Historical Development of Information Asymmetry Theory

Asymmetric information refers to the fact that each person in a transaction has different information. In social, political, economic and other activities, some members have information that other members cannot have, resulting in an asymmetry of information calling. in a market economy.

During the activity, there are differences in the understanding of relevant information among different types of personnel; Personnel who have sufficient information are often in a more advantageous and ambitious position, while those who are poor in information are in a relatively disadvantageous position. Asymmetric information can lead to adverse selection. In general, sellers have more information about traded items than buyers, but counterexamples may exist.

An example of the former can be seen in the sale and purchase of used cars, where the seller knows more about the vehicle than the buyer. Examples of the latter are medical insurance.

The official website shall prevail.

What kind of information asymmetry?

Information asymmetry refers to the fact that in market transactions, the information that the seller and the buyer of the product have about the quality and performance of the product is not comparative.

Usually the seller of a product has more information about the product he produces or provides, while the buyer of the product has less information about the product he wants to buy, such as the automobile market, the labor market.

The asymmetry of information will cause market failure, that is, low-quality products crowd out high-quality products on the same standard, reduce the consumption of high-quality products or even squeeze high-quality products out of the market, which is called the "lemon problem" in economics.

Information Asymmetry Impact:

Information economics believes that information asymmetry has caused an imbalance of interests between the two sides of the market, affected the principle of social fairness and justice and the efficiency of the market's allocation of resources, and put forward various solutions. However, it can be seen that information economics is based on empirical analysis of existing economic phenomena, and it is still in the process of trying to solve real problems.

For example, the buyer will always have less information about the goods purchased than the person who sells the goods, so the seller can always get paid more than the value of the goods by virtue of the information advantage. The transaction relationship has become a principal-** relationship because of information asymmetry, the party with the information advantage in the transaction is the first person, and the party without the information advantage is the principal, and the two parties to the transaction are actually engaged in an endless information game.

The asymmetric information theory holds that the borrower is in an advantageous position and the lender is in a disadvantageous position in the possession of relevant information, and both parties are aware of this situation. (3) There is no contradiction between the two.

They all believe that the average market reflects the effective information that is publicly available, and the existence of asymmetric information is an important factor in determining the effectiveness of the market. The theory of information asymmetry refers to the fact that in market economic activities, there are differences in the understanding of relevant information among various types of people; Those who have more information tend to be in a more advantageous position, while those who are poor in information are in a more disadvantageous position. The theory argues:

In the market, the seller knows more about the product than the buyer; The party with more information can benefit from the market by delivering reliable information to the information-poor orange elders; The buyer and seller who has less information will struggle to obtain information from the other party; Market signals show that information asymmetry can be compensated for to a certain extent.

Information asymmetry is a common phenomenon, which not only exists in all kinds of market transactions, but also exists in our daily life in general. It is rooted in the social division of labour, the differences in people's desires and abilities, and the tendency of people to profit for themselves or to avoid losses. The so-called information asymmetry refers to the asymmetry of relevant information owned by both parties in the market transaction, one of which has more information than the other, and both parties know the distribution of this asymmetric information, which is our childhood joke "I know what you don't know".

Information asymmetry can be divided into two categories according to different market players:

One is that the seller has more information than the buyer, and the buyer is not as savvy as the seller. For example, in a product marketplace, the seller has more information about the quality, performance, service life, and production cost of the product than the buyer.

The other is that the buyer has more information than the seller, and the seller is not as savvy as the buyer. For example, in the financial and insurance market, borrowers have more information about the future returns of investments and the risk of round-up increases than lenders.

Information asymmetry can be divided into two categories according to different times:

One is ex-ante asymmetric information, also known as "exogenous" information asymmetry. For example, in the labour market, employees have more information about their productivity than their employers before they sign a contract with their employers. In the product market, the seller knows more about the quality of the product than the buyer before the commodity is traded.

We now live in a society with a high degree of division of labor and cooperation, and trust between people is the cornerstone of social operation, but due to information asymmetry, that is, the parties in the transaction have different information, the people who have more sufficient information are often in a more advantageous position, and the people who are poor in information are in a more disadvantageous position, such as many goods, it is difficult for our ordinary consumers to distinguish the counterfeit and shoddy.

It is not terrible to have low-quality goods on the market, the key is how to accurately reflect the quality of the goods.

Information asymmetry triggers a crisis of confidence, and if this problem is not addressed, bad money drives out good money, which will eventually lead to market collapse. To overcome the obstacle of information asymmetry, there are several ways to gradually build mutual trust:

In the previous acquaintance society, everyone in the township has known each other for generations, once you deceive others, others can always find you, and everyone spreads the word, a bad review will follow for a lifetime. That's the benefit of repeat transactions, people know that they will meet again, and there will be less cheating.

The buyer and the seller do not trust each other, they know a middleman together, and let the middleman act as a guarantee, and both parties can build trust. For example, we are all using **, which is the case, unfamiliar buyers and sellers, the buyer will hand over the money first, and then send the money to the seller after the buyer receives the goods and is satisfied. Without such an intermediary platform, many people are afraid to do business with people who are thousands of miles away and do not know each other.

Whenever a product is to be added to Zen Yuan after a higher added value, then only those products with higher quality are worthy of this higher added value. Therefore, in reality, people often judge the quality of products according to the level of added value. Because if there is a problem with the quality of your products, after being discovered, you configure a higher additional cost, which will cause you a greater loss.

When we buy oranges, we only buy a fruit, but the orange seller deliberately leaves two more leaves, which can show the freshness of the orange. The exquisite packaging of mooncakes is even more expensive than the cost of the mooncakes themselves, but often the more beautifully packaged, the more delicious the mooncakes inside.

Replace quality inspection with quality three guarantees, so that manufacturers avoid the extremely high cost of rigorous testing, and consumers can also repair, replace, and return quality problems found in a certain period of time, and both parties are happy. For those who are particularly careless or particularly picky about Hedan, you can also purchase the extended warranty service of the merchant to increase the three-guarantee period of the product.

However, it is difficult to judge the quality of some products in advance, and then a shared contract can solve this problem well. For example, the publisher and the author agree before the publication of the book that 10% of the book's income will go to the author, which can stimulate the enthusiasm of the author more than the fixed manuscript fee, and ultimately achieve a win-win effect.

The above is the after-class summary after studying Mr. Xue Zhaofeng's column this week, I hope it can help you.

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