The world's funniest economics stories

Chapter 23 Know Yourself, Know Your Enemy, and Win a Hundred Battles, Influencing Decision-making Chips (2)
Simple Jim fell into contradiction for a while.At this time, news spread among the teammates that Harley's instructor was going to elect a new squad leader.However, instructor Harley made it clear that the candidate for this squad leader must not only have excellent military qualities, but more importantly, interpersonal coordination skills.Jim very much hopes to become the monitor smoothly and take the first step towards his ideal in life.But what the instructor Harley said in the rumors made him feel that maybe the person the instructor said had good military qualities but poor handling skills was just like him, a person who was not good at communication.

Amidst the contradictions and frustrations, the preoccupied Jim made repeated mistakes in training.At noon that day, instructor Halley stayed with him for a long talk.

When the usually serious instructor showed a peaceful smile in front of him, all the worries in Jim's mind were dispelled.With the help of instructor Harley, he voiced all his thoughts and feelings.

"Actually, I have known you for a long time." Instructor Harley patted Jim on the shoulder and said very approvingly.Suddenly, Jim was elected as the class monitor by the Harley instructor on that day.

Information asymmetry means that each person in the transaction has different information.That is to say, the information possessed by all parties in the market transaction is not equal, and the price and quality information of the goods or services held by the buyer and the seller are not the same, that is, one party has more relevant information than the other party, and is in an information dominant position. The other party is at an information disadvantage.

In general, sellers have more information about traded items than buyers, but the reverse can also exist.From the perspective of economics, it means that one party to the transaction does not fully understand the other party to the transaction, and the two parties are in an unequal position.

If we use economics to explain the situation of Jim and Instructor Halley in the previous story, we can analyze it as follows: As far as Instructor Halley is concerned, he has far more information than Jim through his observation and understanding of the recruit Jim. Jim imagined much more.As far as Jim is concerned, he doesn't know much about Instructor Harley, so the information he has about Instructor Halley is naturally very little.In this situation of unequal grasp of each other's information, Jim's concerns and contradictions appeared.Fortunately, a timely conversation by instructor Halley allowed the exchange of information between the two.

In a market economy, information asymmetry exists to varying degrees in various transactions.Under normal circumstances, despite the existence of information asymmetry, the usual market information is sufficient to ensure the effective production and sales of products and services; in other cases, information asymmetry leads to market failure.In such cases, the government may be required to enter the market.

In real life, we can see many situations where information is not equal.For example, in the second-hand car market, sellers know more about vehicles than buyers do.In addition, asymmetric information may also lead to adverse selection.The phenomenon was first described by Kenneth Joseph Arrow in 1963.Akerlof further elaborated in his famous book "The Market for Lemons" in the 1970s.Three American economists, Akerlof, Spence, and Stiglitz won the 2001 Nobel Prize in Economics for their research results on asymmetric information markets and information economics.

Information is a term in information theory, often referring to the meaningful content of a message as information. In 1948, Shannon, an American mathematician and founder of information theory, pointed out in a paper entitled "A Mathematical Theory of Communication": "Information is something used to eliminate random uncertainty." In 1948, Wiener, the famous American mathematician and the founder of cybernetics, pointed out in the book "Cybernetics": "Information is information, neither matter nor energy."

4. Yaksha's smoke screen - the incompleteness of information

It is said that two businessmen went out to do business with a caravan team consisting of 500 people.At this time, a young man in the form of a yaksha ghost wearing noble clothes and flowers on his head appeared in front of the people, playing the piano while walking.

"Why do you have to work so hard to carry so much food, grass and water? There are fertile grass and sweet springs not far ahead. Why don't you follow me, and I will guide you." Yasha ghost said to everyone.

One of the businessmen who led the team heard Yasha ghost's words, and immediately asked everyone to give up the things they were carrying, followed behind him, and left.Another leader said to the crowd, "We haven't really seen the aquatic plants yet, so we need to be cautious, and we can't easily throw away the food and grass on our bodies."

As a result, a group of businessmen who followed Yasha's nonsense and left first died of thirst because they could not find water and food, while the other group of businessmen overcame many difficulties and finally reached their destination.

Just like the two business leaders, the success or failure of decision-making is often related to the success or failure of one thing and the rise and fall of an enterprise.At this time, the quality and ability of decision makers become a crucial link.It can be seen that talents with high technology and high IQ have a significant role in promoting the development of enterprises.

In the previous story, different decisions led to different endings for the two teams.Specifically, the reason why the two business leaders made different decisions lies in their judgment on what Yasha Ghost said.After hearing the message conveyed by Yasha Ghost, the decision made by the second merchant leader allowed the merchants who followed him to reach their destination smoothly.Let's see how he judges based on what he said to Yasha ghost.

First of all, the business leader feels that he has not seen the water source, so he can't easily give up the spare items; secondly, can he listen to what the stranger in front of him who only met once said with confidence?Considering these two points, the second merchant leader decided to see the water before choosing whether to continue to carry the reserve supplies. Before seeing the water, they neither listened to the Yasha ghost nor followed the Yasha ghost. It was the best way to do so. way of insurance.

Unfortunately, the first businessman leader was bewitched and made a wrong judgment under the smoke screen put by the Yasha ghost.

In the economic activities of today's society, the information resources and information processing of different economic subjects are almost asymmetric.Due to the differences in the ability of the subject itself and the environment, even with the same information, the decisions made after processing may be completely different.The resulting new messages will continue to amplify this asymmetry.Information asymmetry, but face to face is the incomplete information.

Incomplete information means that market participants do not have full knowledge of the state of an economic environment.The New Keynesian school believes that the incomplete information economy is more realistic than the complete information economy, and the market equilibrium theory must be revised under the condition of incomplete information.

Incomplete information not only refers to the incompleteness in the absolute sense, that is, due to the limitation of cognitive ability, it is impossible for people to know any situation at any time and anywhere, but also refers to the incompleteness in the "relative" sense, that is, the market The economy itself is not capable of producing enough information and deploying it efficiently.

As a valuable resource, information is different from an ordinary commodity.When people buy ordinary goods, they must first understand its value and see if it is worth buying.Buying informational goods, however, doesn't do that.People are willing to pay for information because they don't know it yet, and once they know it, no one is willing to pay for it.

This raises a difficult question: Should the seller let the buyer fully understand the value of the information being sold before buying?If it is not allowed, the buyer may not buy it because he does not know whether it is worth it; if it is allowed, the buyer may not buy it because he already knows the information.In this case, to be able to make a "business" can only rely on the unreliable mutual trust between the buyer and the seller: the seller makes the buyer fully understand the usefulness of the information, and the buyer promises that after understanding the usefulness of the information, That is to buy it, thus causing moral hazard in market transactions, making the market inefficient and limiting the role of the market to a certain extent.

Complete information is when the information is completely open to both parties, and the two parties are not aware of the other party before the other party makes the decision at the same time or at different times.When studying any economic phenomenon and behavior, we must fully pay attention to the incompleteness of this information.The incompleteness of information makes it impossible for traditional economic theory to transition from microcosm to macrocosm.

Adverse selection In real economic life, there are some phenomena that are inconsistent with the routine.Normally, if the price of a commodity is lowered, the demand for that commodity will increase; if the price of a commodity is raised, the quantity of that commodity supplied will increase.However, due to incomplete information and opportunistic behavior, sometimes consumers will not make the choice to increase purchases when the price of goods is lowered, and producers will not increase supply when prices are raised.Therefore, it is called "adverse selection".

5. Grocery shopping for old ladies--information and search costs

Xiao Li and Wang Ma live in the same community.Wang Ma lived alone in a one-bedroom apartment on the third floor, and went to the nearby vegetable market every night to buy vegetables.On the way to buy vegetables, Wang Ma often meets Xiao Li who just got off work and lives alone.

As a very familiar old neighbor, when Xiao Li was going to cook and buy vegetables, he met Wang Ma and chatted all the way into the vegetable market.But although they are all here to buy vegetables, the way they buy vegetables is very different.Elderly Wang Ma usually buys vegetables by visiting the vegetable market first, looking at the quality and price of vegetables in different stalls, and then choosing the best ones after shopping around.Sometimes, in order to buy high-quality and cheap vegetables, she even walks a long way to other vegetable markets to pick vegetables.In Wang Ma's opinion, she usually has nothing to do. When she goes out to buy groceries, she can walk a little longer and exercise her body, so it's like a walk.

Xiao Li's grocery shopping is much simpler. Generally, she buys the right one when she sees it, and rarely spends time shopping in the market for comparison.When it comes to paying, Xiao Li will not be as fussy as the elderly Wang Ma.

Economics actually appears in very ordinary life.In the above story, the difference between Wang Ma and Xiao Li when they went to the vegetable market to buy vegetables can also be analyzed with economic knowledge.We can first make an assumption: Will Wang Ma's approach be more affordable than Xiao Li's?
Obviously, whether it is Wang Ma or Xiao Li, their behavior is rational.Economists believe that information is the basis for people to make decisions.But access to information costs money and time.Information can bring benefits to people. When doing something, the more information you have, the more correct your decision will be.Here, the price paid when seeking information is the search cost.

In the story, Wang Ma's visit to the vegetable market is an activity of searching for information. In this process, the time and money she spends are the search costs.After some comparisons, Wang Ma bought better and cheaper dishes, which was the income from the search.Accordingly, we look at the specific concept of information search costs.

Information search cost refers to the search value generated by price dispersion in free competition.

The concept of information search cost originates from the research on consumer purchasing behavior.Due to the information asymmetry between consumers and merchants, consumers are trying to find the price information of homogeneous commodities sold in different regions or stores, so as to find the most cost-effective commodities.Information seeking behavior will undoubtedly help consumers make ideal purchase decisions. "Shopping around" is a classic description of information-seeking behavior.

However, information search also has a cost, mainly referring to the time cost spent in the search process.Information search cost is a kind of opportunity cost. When it is greater than the commodity price benefit brought by information search, the search may fail or be terminated.It is worth noting that the same time consumption has different time costs for different individuals.For example, elderly people who have retired may go to many supermarkets for the price difference of a few dollars to find the lowest price; while young people who are busy with work may prefer to buy the goods they need nearby, regardless of the price. Whether to buy the lowest price, because time is a scarce resource for them.

(End of this chapter)