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Cambridge Surveys of Economic Literature
The Analytics of Uncertainty and Information
Recent intellectual advances in the theory of uncertainty and information are presented in this book, which unifies many important but partial results into a satisfying single picture, making it clear how the economics of uncertainty and information generalizes and extends standard economic analysis. Part 1 covers the economics of uncertainty: each person adapts to a given fixed state of knowledge by making an optimal choice among the immediate "terminal" actions available. These choices in turn determine the overall market equilibrium reflecting the social distribution of risk-bearing. In Part 2, covering the economics of information, the state of knowledge is no longer held fixed, and individuals can overcome their ignorance by "informational" actions. The text also addresses many specific topics such as insurance, the Capital Asset Pricing Model, auctions, deterrence of entry, and research and invention.
480 pages, Perfect Paperback
First published September 1, 1992
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December 8, 2025
Information and uncertainty are opposites. Uncertainty exists where there is a dearth of information, so, acquiring more information decreases our uncertainty about a subject. A natural question is why we have to study both information and its lack. In my opinion, we do this for the same reason we study diseases and their absence (health). Methods for preventing and curing diseases, that is, maintaining and returning to health, are different.
According to the book’s short introductory chapter, “A fundamental distinction is between the economics of uncertainty and the economics of information. … In the economics of uncertainty, the individual is presumed to act on the basis of current fixed beliefs. … In the economics of information, a person typically is trying to arrive at improved beliefs.”
Over the past few decades, there has been a significant leap forward in our understanding of the nature of uncertainty and decision-making with imperfect information. These advances stem, in part, from key developments in game theory and its applications to various theoretical and practical domains. Stock-market analysts now issue regular reports on share-price uncertainty derived from economic theories. Similarly, formal analyses of uncertainty are conducted by governments in areas such as safety, health, return on investment, and income distribution.
The book’s 12 numbered chapters are divided into two parts dealing with uncertainty (4 chapters) and information (8 chapters).
- Elements of decision under uncertainty
- Risk bearing: The optimum of the individual
- Comparative statics of the risk-bearing optimum
- Market equilibrium under uncertainty
- Information and informational decisions
- Information and markets
- Strategic uncertainty and equilibrium concepts
- Informational asymmetry and contract design
- Competition and hidden knowledge
- Market institutions
- Long-run relationships and the credibility of threats and promises
- Information transmission, acquisition, and aggregation
According to the book’s short introductory chapter, “A fundamental distinction is between the economics of uncertainty and the economics of information. … In the economics of uncertainty, the individual is presumed to act on the basis of current fixed beliefs. … In the economics of information, a person typically is trying to arrive at improved beliefs.”
Over the past few decades, there has been a significant leap forward in our understanding of the nature of uncertainty and decision-making with imperfect information. These advances stem, in part, from key developments in game theory and its applications to various theoretical and practical domains. Stock-market analysts now issue regular reports on share-price uncertainty derived from economic theories. Similarly, formal analyses of uncertainty are conducted by governments in areas such as safety, health, return on investment, and income distribution.
The book’s 12 numbered chapters are divided into two parts dealing with uncertainty (4 chapters) and information (8 chapters).
- Elements of decision under uncertainty
- Risk bearing: The optimum of the individual
- Comparative statics of the risk-bearing optimum
- Market equilibrium under uncertainty
- Information and informational decisions
- Information and markets
- Strategic uncertainty and equilibrium concepts
- Informational asymmetry and contract design
- Competition and hidden knowledge
- Market institutions
- Long-run relationships and the credibility of threats and promises
- Information transmission, acquisition, and aggregation
Displaying 1 of 1 review