Microeconomic models work under the assumption that both consumers and producers are perfectly informed. Theory tells us that a market functions best when consumers have access to all data and rationally decide product choice based on their knowledge.

Clearly we do not have perfect information. Information costs may be too expensive for consumers, information unavailable, unknown, or concealed.


Should the government, in the interest of keeping the market free and fair, institute measures to keep information as perfect as possible?

Hmmm... my gut says yes. You've won the Internets, microeconomically speaking.

Capitlsim r dum!!!

:(.

Microeconomic models work under the assumption that both consumers and producers are perfectly informed. They're also based upon the assumption that people behave according to rational self-interest. So much for reality ;)

Should the government, in the interest of keeping the market free and fair, institute measures to keep information as perfect as possible? The suggestion seems a bit vague for a simple answer. It seems to me that such an effort would have diminishing returns. But did you have anything specific in mind?

~Raithere

They're also based upon the assumption that people behave according to rational self-interest. So much for reality ;)

Rational self-interest being maximizing utility and minimizing cost. Different strokes for different folks, with the assumption that everyone's going for the bestest stroke at the leastest cost.

The suggestion seems a bit vague for a simple answer. It seems to me that such an effort would have diminishing returns. But did you have anything specific in mind?

Companies being forced to put nutrition info on the back of their products.
Anti-smoking ads (was that a private non-profit that did that by being funded through lawsuits?).
Etc.

Roman, when you say "perfect", are you talking about the amount of information or the quality of information?

When in doubt, look it up. (http://en.wikipedia.org/wiki/Perfect_information)

The suggestion seems a bit vague for a simple answer. It seems to me that such an effort would have diminishing returns. But did you have anything specific in mind?

Also, protection against consumer fraud, such as false advertising.

Roman:

All those things are being done, although the "Truth Campaign" is more about anti-marketing than providing information. This brings up another interesting problem in the question of perfect information, one can present perfectly true information in such a way that it is misleading and how information is collected can skew the data.

~Raithere

Yes, I know all these things are being done, but to what extent ought they be done? Is it the gov't responsibility?

What about skipping providing people info and moving straight to controlling the market? Presumably informed people would purchase as much cocaine (that is, zero cocaine) as those who are unable to purchase cocaine due to a successful (yeah right) war on drugs.

Yes, I know all these things are being done, but to what extent ought they be done? Is it the gov't responsibility? Well, as I said I think we're dealing with an issue of diminishing returns. I've no idea what the cost / benefit analysis would be but it seems that we should require the disclosure of the most relevant information (such as the ingredients in food, corporate financial data). I guess my question is, do you feel there are specific things that should be disclosed but aren't?

What about skipping providing people info and moving straight to controlling the market? If you control the market it ceases to be a market. Personally, I think letting people make their own decisions (good or bad) is far better than having someone control it for them. The collective is often better at making good decisions than experts are, for one ("The Wisdom of Crowds" - Surowiecki). It also puts far too much power, IMO, in the hands of too few people.

Presumably informed people would purchase as much cocaine (that is, zero cocaine) as those who are unable to purchase cocaine due to a successful (yeah right) war on drugs. You're presuming the anti-drug campaign is presenting information. It's not, it's a political tactic... marketing again, like the truth campaign. I suggest we veer off of this one; it's a whole thread in itself.

~Raithere