Market For Lemons

II. Brief description of the role that uncertainty plays in economic theory/models and contrast this perspective with the sociological account Since Knight (2005), the monetarist models use assumptions of perfect information and imperfect with respect to the future. With the emergence of imperfect information the economist stated that it can be predicted by stochastic variables (random) from the probabilistic point of view, one can calculate the costs and benefits of different actions present. These assumptions were replaced by Keynes with the notion of uncertainty about the future, which is the cause (according to him) of existence of underemployment of productive resources and persistent imbalances in the economic system. Components of uncertainty about the future are the investment risk factor leading to speculative behavior of savers, the incompatibility of present and future decisions, and the future scenarios without limit. (Meller 1986) Institutional economist such as Williamson (1981) claims that uncertainty is a critical dimension for describing transactions. At different states of nature uncertainty may occur …show more content…
To illustrate this situation Akerlof (1970) -in "The market for lemons"– proposes a model that describes the the assimetric information in the market for used cars. The analysis provided by Akerlof not only explains how private information can lead to malfunctioning of markets, but also indicate the frequency with which these information asymmetries and long-term consequences occur. Examples thereof, in addition to the disappearance of transactions in the used car market are also social segregation in the labor market and the difficulties of the elderly to buy individual health

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