Information asymmetry (Kremlin edition)

The West has no idea what Russia is willing to do, but Russia knows exactly what the West will – and, more important, will not – do. This has created a dangerous asymmetry, which could spell disaster for the international order that has existed since the end of the Cold War.

This perceptive quotation is from Ivan Krastev’s insightful critique of the free world’s weak and pusillanimous response to Russia’s illegal annexation of the Crimea. By the way, George Akerlof was the first theorist to model the phenomenon of information asymmetry in his classic 1970 paper The Market for Lemons: Quality Uncertainty and the Market Mechanism. Although Akerlof’s simple game-theoretic model was designed to explain the effect of quality uncertainty in the market for used cars, the problem of uncertainty (as well as the problem of information asymmetry generally) has many applications in many different and unrelated areas of life, such as the decision in law whether to settle or go to trial (*) … Can you think of any other applications?

Don’t f*** with me!

About F. E. Guerra-Pujol

When I’m not blogging, I am a business law professor at the University of Central Florida.
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