The Internet can have a significant influence on asymmetric information problems.
A. How can the internet help to solve information problems?
B. Can the internet compound some information problems?
C. On which problem would the internet have a greater impact, adverse selection or moral hazard?
9 Answers | Add Yours
For choice B, I think the internet could definitely compound informational problems in terms of personal security and information.
Identity theft has skyrocketed along with the increased used of the internet. Private information is available oftentimes with little effort to those seeking it. The expanse of the internet has grown beyond our capabilities to keep it secure, which is and will continue to be a major issue in the future.
It is a great and powerful thing to be able to access practically any type of information right at your finger tips. However, as many have stated before, too much of a good thing can be harmful. It is really difficult to regulate websites.
One of the problems with the internet is that there is literally too much information. One of the key problems with it is that it is very difficult to regulate and ensure that all the information that is posted on it is accurate and not manipulated or untrue. This is famously the case with sites such as wikipedia where information can be changed or innacurate.
Truly, the internet has been a boon to consumers as, for instance, car dealers can no longer deceive people about the costs of cars and accessories. For, potential customers can access much knowledge of the product that they want.
Of course, the negative side presents the deception of supposedly legitimate documents, etc. that can be viewed by the multitudes of those who surf the worldwide web.
As someone who tries to use the internet carefully before spending money, I have found it to be a great help. I usually investigate thoroughly the reviews of most items I buy that are at all expensive. I am, for instance, right now thinking of purchasing an item, so I have been doing my research to see how it is reviewed by experts and by "regular" people. The product I'm considering purchasing has 84 nearly 5-star reviews on Amazon, which is a very unusual achievement. In fact, I have not yet read one single negative review of this product, so I am leaning heavily towards purchasing it. Before the existence of the internet, I would never have had this kind of information.
The Internet can and does compound information problems. Look at all the "forward this" and "OMG did you know" emails and posts that spread around the web; most people can't be bothered to do their own research and so accept everything they read as gospel. While the Internet is an incredible information tool for people who are willing to do research and check their sources, it is a much more valuable tool for people who want to trick and mislead people, as anything on the Internet gains a certain amount of credibility. Remember, a lie can get around the world before the truth can get its boots on; it is much easier to continue a sensational lie than to convince people of the boring truth.
The internet democratizes knowledge and make it easily accessible. This can help customers in tremendous ways. For example, customers are able to docomparative shopping for nearly anything, even homes. For this reason, the customer is in a position of strength, as long as they know where to look.
In terms of your second question, yes the internet can also compound problems. When there are so many talking heads, you do not know who to listen to. You might not believe the expert and buy into the foolishness of the person who sounds the best.
The internet definitely gives people more information, but with the overwhelming amount of information out there it is sometimes hard to judge which is accurate. A person may think that information is good, but then end up using the wrong information or misled by intentionally biased information.
The internet can help to solve this problem by giving consumers more information. A consumer can research the true price of a big ticket item or its reliability. This gives them more information that they can use in bargaining. This is particularly true in the area of new car sales where services that tell customers the true price of various cars help customers to avoid being exploited by dealerships.
We’ve answered 319,663 questions. We can answer yours, too.Ask a question