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Asymmetric information and economics

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  • Frieden, B. Roy
  • Hawkins, Raymond J.

Abstract

We present an expression of the economic concept of asymmetric information with which it is possible to derive the dynamical laws of an economy. To illustrate the utility of this approach we show how the assumption of optimal information flow leads to a general class of investment strategies including the well-known Q theory of Tobin. Novel consequences of this formalism include a natural definition of market efficiency and an uncertainty principle relating capital stock and investment flow.

Suggested Citation

  • Frieden, B. Roy & Hawkins, Raymond J., 2010. "Asymmetric information and economics," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(2), pages 287-295.
    • Handle: RePEc:eee:phsmap:v:389:y:2010:i:2:p:287-295
    DOI: 10.1016/j.physa.2009.09.028
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    Cited by:

    1. Stephan Leitner & Friederike Wall, 2021. "Decision-facilitating information in hidden-action setups: an agent-based approach," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 16(2), pages 323-358, April.
    2. Ciprian MatiÅŸ & Eugenia MatiÅŸ, 2013. "Asymmetric Information In Insurance Field: Some General Considerations," Annales Universitatis Apulensis Series Oeconomica, Faculty of Sciences, "1 Decembrie 1918" University, Alba Iulia, vol. 1(15), pages 1-17.
    3. Tilles, Paulo F.C. & Ferreira, Fernando F. & Francisco, Gerson & Pereira, Carlos de B. & Sarti, Flavia M., 2011. "A Markovian model market—Akerlof’s lemons and the asymmetry of information," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 390(13), pages 2562-2570.
    4. Raymond J. Hawkins & B. Roy Frieden, 2012. "Asymmetric Information and Quantization in Financial Economics," International Journal of Mathematics and Mathematical Sciences, Hindawi, vol. 2012, pages 1-11, December.
    5. Leitner, Stephan & Wall, Friederike, 2022. "Micro-level dynamics in hidden action situations with limited information," Journal of Economic Behavior & Organization, Elsevier, vol. 204(C), pages 372-393.
    6. Patrick Reinwald & Stephan Leitner & Friederike Wall, 2021. "Limited intelligence and performance-based compensation: An agent-based model of the hidden action problem," Papers 2107.03764, arXiv.org.
    7. Hawkins, Raymond J. & Aoki, Masanao & Roy Frieden, B., 2010. "Asymmetric information and macroeconomic dynamics," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 389(17), pages 3565-3571.

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