Yesterday I talked about why people would like to interact with each other when making utility judgement. My conclusion was people should interact with each other as they do not have access to perfect information. Today I want to explain the difficulties individuals may face when trying to improve their information and utility judgement by interacting with each other.
Between individuals, information asymmetry does exist as well. Because of the existence of information asymmetry, people do not tend to know how the others make their own utility judgement; therefore, when borrowing others’ utility judgement, the judgement may not fit in individuals’ own cases. In addition, due to the existence of information asymmetry, the signals about others’ utility judgement are not reliable or useful as others may also make the judgement based on similar circumstances.
Secondly, besides information asymmetry, different individuals have different preferences, so only observing market prices as signals are not going to be reliable. Thirdly, receiving information from suppliers always will make customers be manipulated by suppliers, as they have put lots of resources on researching on how to manipulate customers’ behaviour. Fourthly, even after interacting with each other, individuals may still be uncertain about utility judgement, so the effectiveness of interacting with other is doubtable in terms of individuals making their utility judgement.
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