Information - chapter 10

Adverse selection

a state that occurs when buyers and sellers have different information about the quality of a good or the riskiness of a situation; resulting in failure to complete transactions that would have been possible if both sides had the same information.

Principal

a person who entrusts someone with a task; also, in finance, the original amount borrowed or invested.

employer-employee

Generally occurs when a principal entrusts an agent with a task, but can not observe the agents actions, as in the ________ relationship.

Statistical discrimination

distinguishing between choices by generalizing based on observable characteristics in order to fill in the missing information.

reputation

A good ________ is a signal that a business or person has treated partners well in the past.

Complete information

state of being fully informed about the choices that a person and other relevant economic actors face

Information asymmetry

a condition in which one person knows more than another

Agent

a person who carries out a task on someone elses behalf

Principal

a person who entrusts someone with a task; also, in finance, the original amount borrowed or invested

Moral hazard

the tendency for people to behave in a riskier way or to renege on contracts when they do not face the full consequences of their actions

Screening

taking action to reveal private information about someone else

Signalling

taking action to reveal ones own private information

Statistical discrimination

distinguishing between choices by generalizing based on observable characteristics in order to fill in missing information