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Perfect information is a term used in economics and game theory to describe a state of complete knowledge about the actions of other players that is instantaneously updated as new information arises.

Chess is the canonical example of a game with perfect information, in contrast to, for example, the prisoner's dilemma.

In microeconomics, a state of perfect information is required for perfect competition. That is, assuming that all agents are rational and have perfect information, they will choose the best products, and the market will reward those who make the best products with higher sales. Perfect information would practically mean that all consumers know all things, about all products, at all times, and therefore always make the best decision regarding purchase. In competitive markets, unlike game-theoretic models, perfect competition does not require that agents have complete knowledge about the actions of others; all relevant information is reflected in prices.

It is law of sociology that perfect information does not exist, and cannot totally exist, due to the presence of deception. For example, a crooked used-car salesman could sell a consumer a car that he knew was only going to last another 1000 miles, as a car that will last much longer. He as the seller has an advantage against the consumer. This knowledge of asymmetric information, as the consumer does not have as good information about the cars as the seller does, can also lead the consumer to assume that the cars are in general of poor quality. This will again give the seller an incentive not to sell high quality cars as the consumer will have no way of knowing that the car is of higher quality, and thus not be willing to pay a higher price for the car. Sellers can attempt to differentiate themselves from other providers by various guarantees, offers and independent assessments.

Advertising serves two roles. Firstly, it allows producers to increase the amount of available information by providing consumers with more information about their products. Furthermore, it allows producers to use a lack of perfect information to counter product deficiencies by way of advertisement. In theory, the more information that exists about products, the more "free" a market is. In practice, it is also the quality of the information that counts.

[edit] See also

• Complete information
• Extensive form game

[edit] References

• Fudenberg, D. and Tirole, J. (1993) Game Theory, MIT Press. (see Chapter 3, sect 2.2)
• Gibbons, R. (1992) A primer in game theory, Harvester-Wheatsheaf. (see Chapter 2)
• Luce, R.D. and Raiffa, H. (1957) Games and Decisions: Introduction and Critical Survey, Wiley & Sons (see Chapter 3, section 2)

This box: view • talk • edit	Topics in game theory
Definitions	Normal form game · Extensive form game · Cooperative game · Information set · Preference
Equilibrium concepts	Nash equilibrium · Subgame perfection · Bayes-Nash · Trembling hand · Correlated equilibrium · Sequential equilibrium · Quasi-perfect equilibrium · Evolutionarily stable strategy
Strategies	Dominant strategies · Mixed strategy · Grim trigger · Tit for tat
Classes of games	Symmetric game · Perfect information · Dynamic game · Repeated game · Signaling game · Cheap talk · Zero-sum game · Mechanism design
Games	Prisoner's dilemma · Coordination game · Chicken · Battle of the sexes · Stag hunt · Matching pennies · Ultimatum game · Minority game · Rock, Paper, Scissors · Pirate game · Dictator game · Public goods game
Theorems	Minimax theorem · Purification theorems · Folk theorem · Revelation principle · Arrow's Theorem
Related topics	Mathematics · Economics · Behavioral economics · Evolutionary game theory · Population genetics · Behavioral ecology · Adaptive dynamics · List of game theorists

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hu:Teljesinformációs játék

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This page uses content from the English-language version of Wikipedia. The original article was at Perfect information. The list of authors can be seen in the page history. As with Psychology Wiki, the text of Wikipedia is available under the GNU Free Documentation License.