Ludwig von Mises Institute

Perfect information

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In economics, a state of perfect information is assumed in some models of perfect competition. Perfect information practically means that all consumers know all things, about all products, at all times (including knowing the probabilistic outcome of all future events) , and therefore always make the best decision regarding purchase. In competitive markets, unlike game-theoretic models, perfect competition does not require that agents have complete knowledge about the actions of others; all relevant information is reflected in prices.[citation needed]

Criticisms[edit]

There are four fundamental reasons why information necessary for market decisions is "imperfect", two are related to the inherent nature of things, two are caused by competitive behavior, being endogenous to the competitive process:

  • The information cannot be known at the time the decision to produce or to buy must be made (the temporal problem). Production, trade and consumption happen at different times.
  • The information is not revealed by the good or the process (the revelation problem)
  • The information is a private rival good that is developed and protected as property that is withheld (the property problem)
  • Information can be and is made available to some selected players before others (the insider problem)

A general theory of economic behavior would be better to assume that all information is a good, not a given, and all information must be acquired at a cost.[1]

References[edit]

  1. Roger Mann. "Antimarket economics: blind logic, better science, and the diversity of economic competition" (Google Books preview), Greenwood Publishing Group, 1996, p. 40-42.

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