CAS EC 101 Chapter Notes - Chapter 22: Invisible Hand, Adverse Selection, Voting Paradox

• School: Boston University
• Department: Economics
• Course: CAS EC 101
• Professor: All

Document Summary

Chapter 22 frontiers of microeconomics: asymmetric information, a difference in access to information on a relevant context is referred to as information asymmetry. Hidden actions occur when a person behaves in a way that is relevant but unknown to other parties. In democratic systems, the condorcet paradox can occur when there is a failure of majority rule to produce transitive preferences for society. An example of the condorcet paradox: outcomes: democratic/voting-based systems have four main properties within their. Unanimity: the outcome is primarily preferred by all voting parties. Independence of irrelevant alternatives: the potential outcomes are not dependent on any third-party alternative decisions. No dictators: the outcome does not appeal to any party: no voting systems can mathematically satisfy all the properties of democratic outcomes; under certain conditions, aggregating individual preferences into a valid set of social preferences is impossible.