Information Failure

Information failure occurs when people have inaccurate, incomplete, uncertain or misunderstood data and so make potentially ‘wrong’ choices.

From pensions to computer games consoles, from investing in the stock market to ignorance about the consequences of borrowing and debt, all of us suffer from one or more information failures

Misunderstanding the true costs or benefits of a product: E.g. social costs and benefits of different classes of drugs

Uncertainty about costs and benefits e.g. decisions about private pension schemes

Complex information e.g. choosing between makes of computers requires specialist knowledge. Do I buy an Apple or PC computer?

Inaccurate or misleading information e.g. persuasive advertising

Addiction e.g. drug addicts may be unable to stop consumption of harmful substances

According to the Pensions Commission, twelve million people over the age of 25 are not saving enough

All people face a trade-off between current and future consumer expenditure

Are young people ignoring the pensions time-bomb by not saving enough now?

How many young people can actually afford to save more of their disposable income?

Should the government ‘force’ people to save more for their retirement. Compulsory pension saving, as in Australia, is gaining popularity.

Consumers in Britain spend £1 billion a year on bottled water is which is over 1,000 times more expensive than tap water

In 2003 drinking water in England and Wales met 99.88% of required standards, which cannot be said of all bottled waters

Are consumers suffering from information failure?

Have they been seduced by the effects of advertising and marketing?

90 percent of it is sold in non-reusable plastic containers

Asymmetric information occurs when somebody knows more than somebody else in the market. This can make it difficult for the two people to do business together

Examples include the following: A government selling mobile phone or

broadcasting licences does not know what buyers are prepared to pay for them (an auction is usually the preferred solution to this)

A mortgage lender does not know how likely a borrower is to repay their loan in future years

A used-car seller knows more about the quality of the car being sold than do buyers

Information Failure example : sunbeds

http://news.bbc.co.uk/player/nol/newsid_7330000/newsid_7335900/7335944.stm?bw=bb&mp=wm&news=1&nol_storyid=7335944&bbcws=1