Chapter 11 - The economics of information

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Adverse selection

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

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Statistical discrimination

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

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33 Terms

1
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Adverse selection

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

2
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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.

3
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Lemons model

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

4
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political discourse

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

5
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fake principle

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

6
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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.

7
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neutral person

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

8
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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

9
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Expected value of a gamble

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

10
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Fair gamble

gamble whose expected value is zero

11
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Better-than-fair gamble

gamble whose expected value is positive

12
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Risk-neutral person

someone who would accept any gamble that is fair or better

13
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Risk-averse person

someone who would refuse any fair gamble

14
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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

15
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Lemons model

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

16
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Costly-to-fake principle

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

17
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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

18
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Adverse selection

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

19
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Moral hazard

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

20
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Disappearing political discourse

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

21
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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

22
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Expected value of a gamble

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

23
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Fair gamble

Gamble whose expected value is zero

24
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Better-than-fair gamble

Gamble whose expected value is positive

25
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Risk-neutral person

Someone who would accept any gamble that is fair or better

26
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Risk-averse person

Someone who would refuse any fair gamble

27
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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

28
New cards

Lemons model

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

29
New cards

Costly-to-fake principle

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

30
New cards

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

31
New cards

Adverse selection

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

32
New cards

Moral hazard

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

33
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Disappearing political discourse

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