3 ms·

That assumes a lot of things which can't be assumed, information symmetry among them. There's nothing in market economics that insists on the theoretical imposs

• rayiner 9y ago
  Information asymmetry happens when one side of a transaction inherently has more information about a product than the other side of a transaction. E.g. when it comes to food, the producer inherently knows more about the product than the consumer. A loan is pretty much exactly the opposite. All the information the seller has is conveyed to the buyer in the form of the loan terms.
  • CPLX 9y ago
    That's obviously facile. Information asymmetry is not just about information contained within the four corners of a contract, but also about information that is not. A market participant who engages in a very small number of borrowing transactions over a lifetime by definition has less available information than a lending institution. For what it's worth I have a degree in economics, and in my experience I almost invariably hear this sort of characterization of economic systems as simple and Newtonian from people who are generally unfamiliar with contemporary economic theory. The economy is a complex adaptive system that has a penchant for reaching inefficient local maxima. Not every market clears. It's quite plausible that subprime lending is one such example, a theory that is also well contained within the general heading of "market economics".