Chapter 11 - The economics of information

Adverse selection

________: pattern in which insurance tends to be purchased disproportionately by those who are most costly for companies to insure.

Statistical discrimination

________: practice of making judgments about the quality of people, goods, or services based on the characteristics of the groups to which they belong.

Lemons model

________: George Akerlofs explanation of how asymmetric information tends to reduce the average quality of goods offered for sale.

political discourse

Disappearing ________: theory that people who support a position may remain silent because speaking out would create a risk of being misunderstood.

fake principle

Costly- to- ________: to communicate information credibly to a potential rival, a signal must be costly or difficult to fake.

Asymmetric information

________: situations in which buyers and sellers are not equally well informed about the characteristics of goods and services for sale in the marketplace.

neutral person

Risk- ________: someone who would accept any gamble that is fair or better.

Free-rider problem

incentive problem in which too little of a good or service is produced because non-payers cannot be excluded from using it

Expected value of a gamble

sum of the possible out comes of the gamble multiplied by their respective probabilities

Fair gamble

gamble whose expected value is zero

Better-than-fair gamble

gamble whose expected value is positive

Risk-neutral person

someone who would accept any gamble that is fair or better

Risk-averse person

someone who would refuse any fair gamble

Asymmetric information

situations in which buyers and sellers are not equally well informed about the characteristics of goods and services for sale in the marketplace

Lemons model

George Akerlofs explanation of how asymmetric information tends to reduce the average quality of goods offered for sale

Costly-to-fake principle

to communicate information credibly to a potential rival, a signal must be costly or difficult to fake

Statistical discrimination

practice of making judgments about the quality of people, goods, or services based on the characteristics of the groups to which they belong

Adverse selection

pattern in which insurance tends to be purchased disproportionately by those who are most costly for companies to insure

Moral hazard

tendency of people to expend less effort protecting those goods that are insured against theft or damage

Disappearing political discourse

theory that people who support a position may remain silent because speaking out would create a risk of being misunderstood

Free-rider problem

Incentive in problem in which too little of a good or service is produced because non-payers cannot be excluded from using it

Expected value of a gamble

Sum of the possible out comes of the gamble multiplied by their respective probabilities

Fair gamble

Gamble whose expected value is zero

Better-than-fair gamble

Gamble whose expected value is positive

Risk-neutral person

Someone who would accept any gamble that is fair or better

Risk-averse person

Someone who would refuse any fair gamble

Asymmetric information

Situations in which buyers and sellers are not equally well informed about the characteristics of goods and services for sale in the marketplace

Lemons model

George Akerlof's explanation of how asymmetric information tends to reduce the average quality of goods offered for sale

Costly-to-fake principle

To communicate information credibly to a potential rival, a signal must be costly or difficult to fake

Statistical discrimination

Practice of making judgments about the quality of people, goods, or services based on the characteristics of the groups to which they belong

Adverse selection

Pattern in which insurance tends to be purchased disproportionately by those who are most costly for companies to insure

Moral hazard

Tendency of people to expend less effort protecting those goods that are insured against theft or damage

Disappearing political discourse

Theory that people who support a position may remain silent because speaking out would create a risk of being misunderstood