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The Economics of Information in a World of Disinformation (Stiglitz & Kosenko)

The Economics of Information in a World of Disinformation: A Survey Part 1: Indirect Communication by Joseph E. Stiglitz and Andrew Kosenko published  by NBER (1/2024).

We survey aspects of the intellectual development of the economics of information from the 1970s to today. We focus here on models where information is communicated indirectly through actions. Basic results, such as the failure of the fundamental theorems of welfare economics, the non-existence of competitive equilibrium, and the dependence of the nature of the equilibrium, when it exists, on both what information is available, and how information can be acquired, have been shown to be robust. Markets create asymmetries of information, even when initially none existed. While the earliest literature paid scarce attention to misinformation, subsequently it has been shown that governments can improve welfare, if disinformation is present, through fraud laws and disclosure requirements. Moreover, robust mechanism design enables agents and governments to better achieve their objectives, taking into account information asymmetries. On the other hand, market reforms that ignored their informational consequences may have lowered welfare. Surveying both theory and applications, we review the main insights of these literatures, and highlight key messages using nontechnical language

The Economics of Information in a World of Disinformation: A Survey Part 2: Direct Communication by Joseph E. Stiglitz and Andrew Kosenko published by NBER (1/2024).

The paper surveys the recent work on economics of information with endogenous information structures where individuals can directly communicate information with each other. We consider the theoretical work on cheap talk, Bayesian persuasion, and information design, and review the implications of information control and information abundance for mis and disinformation. The relationship between information and market power is particularly important when social media can amplify and maintain harmful fictions that lead to polarization and undermine not only markets, but democratic discourse. We review both the “rational” decision-making paradigm, as well as departures from it, such as cases where decision makers can choose what to know, can allocate their attention in different ways or have behavioral biases that influence their information processing. We note some important connections to legal and media studies and highlight key messages in nontechnical language.

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