Information in economics is very important, but according to George J. Stigler it is a vastly ignored aspect of the field. Many things about economics are assumed, rather than know for a fact and that impacts how economics works. Information economics is a branch of microeconomics that studies information in economics and how that information impacts decisions of people in the field. Hence, information is integral to economics, for there are people who study it and its affects because of its importance to economics. It is so integral to economics, that it is the starting point for economic analysis; as observing this information allows experts to make decisions that expect higher payoffs in the end. That is the goal of economics, and information plays a key role in getting to the final goal in economics. Information is unique because of its special characteristics: “It is easy to create but hard to trust. It is easy to spread but hard to control. It influences many decisions.” These characteristics make it information extremely unique to the field of economics. Because it is easy to create, there is consequently information that is falsified in order to try and persuade people to make certain decisions. This can lead to bad economic decisions so it is important to find AND assess all information found in the field. That will enable people involved to make the correct economic decision in the end. Joseph E. Stiglitz wrote, “…information is far from perfect;” capturing the essence of how information changes and fabricated in the world of economics. Information can be easily spread, especially in today’s world where the web allows people to spread information with the click of a button. Hence, it is nearly impossible to control the spread of information with the new technology and the ease of talking to people in places far away. Lastly, it is correct that information impacts many decisions in economics, for as I said before economists rely on information to predict outcomes and make decisions based on those predictions.
One of the big downfalls of people’s inability to control information and not being able to trust this information is showcased in information asymmetry. Information asymmetry is when two parties talking about a similar situation have different information. The less informed party will make sure to not be taken advantage of by the more well-informed party; however this situation will cause inefficiency in the system. To combat this problem, Michael Spence offered a solution of signaling. Signaling would be the well-informed party giving some information to the less informed party so they can make a more precise decision based on their needs. Spence used the example of hiring someone to a job. The employer knows what they need but they do not know if the person they are interviewing has that quality (ability to learn). The person being interviewed knows whether or not they are capable of learning but does not have to tell the employer. Spence’s solution is to have something to show whether or not the person is capable of learning, i.e. they went to college. If the employer knows that the person up for the job went to college, then they can infer the person is capable of learning and can be a good fit for the position. This example can apply to all sorts of decisions made in the economics world and make sure that information asymmetry is not as big of a problem. Another way to stop information asymmetry is by screening. Screening is when one party induces the other party to tell them information about themselves. Amusement parks do this when they want people to pay more money. They give priority tickets allowing people to skip lines for higher prices. The people willing to pay this value time more than their money and by buying the tickets they tell the amusement parks this. Information is extremely important to economics, so understanding how to make information asymmetry less of a problem is key to economics.