Game Theory- Asymmetric Information.pptx

Game theory

1. Games With Asymmetric Information

2. Asymmetric Information vs Incomplete Information Incomplete Information Games: a game of incomplete information is  a game where the players do not have common knowledge of the game being played .  Asymmetric Information Games: Where one player has private information about something while the other player dos not have it

3. Asymmetric Games: Two types Adverse Selection: Types are private Knowledge - Adverse selection is the phenomenon that bad risks are more likely than good risks to buy insurance . Moral Hazard: Actions are Unobservable –  Moral hazard is the phenomenon that having insurance may change one's behavior. If one is insured, then one might become reckless.