Chapter 18, Problem 1QFR

To determine

To explain:

The concept of asymmetric information and its relevance in medical care.

Explanation of Solution

Asymmetric information, as applied to any financial trade, is the specialization and division of expertise. It is not something that is bad. In reality, the required result of a good market economy is increasing asymmetric information. As employees seek to become more and more specialized in their selected areas, they become more productive in other areas can thus give higher importance to workers.

Increasing attention is paid nowadays to the health of the individual as it is one of the most significant elements of the well being of a person. Only well educated and professional, such as doctors, can interpret information about the health situation of people. A patient can hardly comprehend their own health situation without a doctor's interpretation. Consequently, when seeking treatment or healthcare advice, the doctor becomes the top option for patients. But there is an enormous asymmetry in data among doctor and patients owing to the big educational imbalance, and doctors can use this asymmetry to influence data they provide to patients, thus making patients pay more than they need.

Economics Concept Introduction

Asymmetric information:

Asymmetric information also referred to as "information failure" happens when there is higher material understanding of one party to a financial transaction than the other. This usually propagates whenever the vendor of a product or service has more understanding than the customer; however it is also feasible to have the inverse dynamic. Nearly all financial operations require asymmetries in data.