This paper critically reviews the economics of uncertainty and information, one of the most important subjects in economics today. An economic man has to choose the best good or service among alternatives. The presence of uncertainty or risk affects his decision in various ways. For one thing, he may be risk averse or risk preferred. For another, his knowledge about the states of the world may be different from others'. In this paper, we pay special attention to the following three topics. The first topic is concerned with the question of how to measure risk aversion. When there is only one stochastic variable, the degree of risk aversion is uniquely measured by the concavity of the utility function, the value of a risk premium or a probability premium. With many variables present, however, the uniqueness of the risk aversion measure is not guaranteed. Second, when information is not evenly distributed among decision-making units, there arise some difficulties at to the working and performance of a market. Among those difficulties are adverse selection and moral hazard. The third topic is related to the role of information played in an oligopolistic market. In the above, we have adopted the expected utility theory of von Neumann and Morgenstern. If, however, the status quo effect and other psycho-socio-anthropological factors are taken into consideration, the effectiveness of the expected utility theory is lessened to a considerable extent. This shows the need to introduce a completely new approach to decision making under uncertainty, by recognizing the basic difference between a vertical society of the East and a horizontal society of the West.
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