>Question: Stiglitz recently won the [not the] Nobel Prize in
>Economics for his work saying that any reckoning of costs had to
>include the economics of obtaining information. Has anyone ever
>attempted to extend his work towards an explanation of the regular
>occurrence of bubbles (which in standard economic theory aren't
>supposed to happen)? The rational economics that keep information
>bubbles inflated (esp. as media become more integrated and
>"competitive"), and their predictable effect on collective and
>individual judgement (since they change the data on which decisions
>are made) seem made for his sort of analysis. And on first sight,
>information bubbles seem more fundamental, more prevalent, and more
>explicable than economic bubbles.
Remember that in Stiggy's info asymmetry theory, participants are rational - they just work with different sets of information. When I first met him, during the peak of the dot.com bubble, he wondered aloud, "Why do people buy those stocks?"
Doug