Asymmetric Information, Signaling, and Game Theory

… a core topic in Economic Analysis and Atlas102

LemonsTopic description

This topic deals with asymmetric information, signaling, and game theory.

The treatment of asymmetric information and signaling follows almost precisely that in Chapter 15, Asymmetric Informationin the open access Principles of Microeconomics course offered by Tyler Cowen and Alex Tabarrok at the Marginal Revolution University online education platform (, accessed 4 May 2016). This is supplemented by other sources for game theory.

Topic learning outcome

Appropriately utilize and interpret results of applying to the analysis of public policy and management problems the basic principles of asymmetric information, signaling, and game theory, including following core concepts.

Core concepts associated with this topic
Asymmetric Information

Asymmetric Information and Insurance

Moral Hazard


Adverse Selection

Propitious Selection

Game Theory

Prisoners’ Dilemma


We believe that asymmetric information and signaling and their core concepts can be mastered to the MPP/MPA level by watching and re-watching the 28 minutes of MRU course videos listed below and doing the 22 sample questions associated with these video segments and reproduced at the bottom of this page and repeated on the appropriate concept pages. A passing familiarity with game theory can be gained by reading the x concept pages and the readings noted below.

Atlas pages: Asymmetric Information, Signaling, and Game Theory and associated Concepts.

Alex Tabarrok, Asymmetric Information and Used Cars, Marginal Revolution University, 3-minute video, at, accessed 4 May 2016.

Tyler Cowen, Asymmetric Information and Health Insurance, Marginal Revolution University, 8-minute video, at, accessed 4 May 2016.

Tyler Cowen, Moral Hazard, Marginal Revolution University, 4-minute video, at, accessed 4 May 2016.

Tyler Cowen, Solutions to Moral Hazard, Marginal Revolution University, 6-minute video, at, accessed 4 May 2016.

Tyler Cowen, Signaling, Marginal Revolution University, 7-minute video, at, accessed 4 May 2016.

Textbook readings in MPP and MPA courses

University of Toronto: PPG-1002

Varian, Hal R., and Jack Repcheck. Intermediate microeconomics: a modern approach. Vol. 6. New York, NY: WW Norton & Company, 2010. Chapter 36 (p. 695-718).

Carleton Unversity: PADM-5111

Frank, Robert, Ian Parker, and Igela Alger. Microeconomics and Behaviour, 5th Canadian Edition. New York: McGraw-Hill, 2013. Chapter 16 and 18.

Harvard Kennedy School: API-101

Pindyck, Robert S. and Daniel L. Rubinfeld. Microeconomics, 8th Edition. Prentice-Hall, 2012. Chapter 18 (661-690).

NYU Wagner: GP-1018

Krugman, Paul and R. Wells. Microeconomics, 3rd edition. London: Worth Publishers, 2012. Chapters 6 and 7 (up to p. 201).

Johnson-Shoyama: JS-805

Krugman, Paul, Robin Wells, and Anthony Myatt. Microeconomics: 1st Canadian Edition. London: Worth Publishers, 2006. Chapters 18 – 20.

Weimer, David L. and Aidan R. Vining. Policy Analysis, 5th edition. London: Longman Publishers, 2011. Chapters 5 – 7.

George Washington: PPPA-6003

Mankiw, N. Gregory. Principles of Microeconomics, 6th edition. Mason: South-Western College Publishers, 2011. Chapters 10 and 11.

Wheelan, Charles. Naked Economics: Undressing the Dismal Science. New York: W. W. Norton & Company, 2010. Chapter 3.

American: PAUD-630

Krugman, Paul and R. Wells. Microeconomics, 3rd edition. London: Worth Publishers, 2012. Chapter 17.


Goolsbee, Austan, Steven Levitt, and Chad Syverson. Microeconomics. New York: Worth Publishers, 2013.

Rutgers- Economics in Public Policy

Pindyck, Robert S., and D. Rubinfeld. Microeconomics, 7th edition. Upper Saddle River: Patience-Hall, 2007. Chapter 18.

Assessment questions (from MRU Practice Questions for Chapters 5 and 6)

From,,, and, accessed 10 May 2016.

AQ102.12.01. For the following two situations, identify whether the scenario was caused by asymmetric information: Unrest in the Middle East causes oil speculators to buy up oil futures, driving gasoline prices higher.

AQ102.12.05. Which of the following concepts or policies below theoretically reduce the effects of adverse selection in the health insurance market?

AQ102.12.10. Identify which of the following situations are caused by moral hazard: Fred lives in an apartment above a restaurant, and his apartment always smells like burgers and fries. He has tried unsuccessfully to get the restaurant owner to remedy the problem.

AQ102.12.14. Identify whether the following scenario is meant to reduce moral hazard effects: Your car insurance has a high deductible (the amount that you have to pay out-of-pocket before insurance kicks in)

AQ102.12.17. True or False: If you were to drop out of college after attending for 3 years and completing 75% of all coursework, you could expect to earn about 75% of the college premium in the labor market.

Page created by: Ian Clark, last modified on 16 May 2016.

Image: Alex Tabarrok, Minute 0:54 of Asymmetric Information and Used Cars, Marginal Revolution University, 3-minute video, at, accessed 10 May 2016.