This course deals with how uncertainty affects the actions and decisions of economic agents and how markets are impacted by the presence of uncertainty. Insurance markets are a typical example of institutions that have arisen to help economic agents deal with uncertainty. There are different forms of uncertainty.
Course Description: A particularly important one is associated with the phenomenon of asymmetric information, where where one party to a potential transaction has more information about relevant facts than the other party (e.g. the seller of a durable second-hand good has information about the quality of the good that is not available to the buyer). Typically, information cannot be credibly transmitted from one party to the other, because the informed party's incentive is to hide negative information. In such situations markets might fail and society might get stuck in an inefficient situation. The course examines different types of uncertainty and the problems that they give rise to.
Instructor(s): Giacomo Bonanno