In a famous contribution to the discipline of Information Economics, George Akerlof challenged neo-classical economic theory with his 1970 paper ‘The Market for Lemons’. He looked at the market implications of imperfect information and found that it can reduce societal welfare by hindering the ability of markets to allocate resources effectively. Spence and Stiglitz, who both shared the Nobel Prize with Akerlof in 2001, came up with solutions to this problem. They respectively pioneered the ideas of signalling and screening, methods by which information could, and in an efficient market would, be transferred to the mutual benefit of the consumer and seller. Here we explore how the rise of the internet, and the increasing availability of information, will affect the various fields of Information Economics.
First, we begin with the rise of algorithms. In order to remove bias from important decisions, the private and public sectors have grown dependent on computer programs that supposedly remove such human factors. Unfortunately, algorithms have been known to be similarly prejudiced, but their effects are being overlooked. We will discuss the macroeconomic effects algorithms have had, and potential remedies to this situation. Second, we will take a look at how information economics has affected the internet, and how the internet affects consumer markets, increases consumer buying power, and changes trends to align with internet users. Finally, we will explore the new age of psychometrics, a method of consumer marketing that targets consumers at an individual level based on their internet browsing. Anything you do on the internet is used by companies to try and appeal to your latest interests, by tracking your hypothetical footprints.
The Internet has an unparalleled amount of information due its vast user base. There are those who wish to benefit from such information through the creation of algorithms to make work easier, or profit from appealing to each consumer at an individual basis. These people will continue to expand the knowledge and abilities of the internet for the benefit of society and themselves.