The Economic Theory of Information: Correction of Classical Axioms for Consumer Behaviour

Abstract:

Information is a special good different in properties from the consumer goods. The knowledge is special structured information that can be reused, including for the creation of new knowledge, as well as a factor of production. The author studies the problem to use ordinal and cardinal approaches in the field of consumer behaviour and for the choice with respect to information regarding the interpretation of basic axioms: «full harmonization», «transitive preferences», «no saturation in consumption» and «independence of a consumer.» The marginal utility of information as a parameter has a serious limitation in the application, because the same portions as the «equal» of information are hard to imagine, not to mention the knowledge as a special form of information. The author generalized the conditions of adverse selection and the value of relevant information to make consumer decisions. The article shows that the costs to overcome adverse selection are the costs of obtaining relevant information that eliminates the effect of information asymmetry. It is seen on the example of buying a used car in the secondary market («the market for lemons» considered by G. Akerlof) inviting a specialist in vehicles, who corrects the effect of information asymmetry. The information structure of the market is created by a need for information on the part of producer and consumer of goods. However, an agent on the supply side needs relevant information at a higher level and more knowledge. All this is the basic condition for providing further information asymmetry that affects the functioning of markets.