| Abstract: | Information is a scarce resource. It is inherently available only in a limited form to decision-makers. Limited or imperfect information is caused by uncertainty — both ontologic and epistemic, limitations in cognitive capabilities or bounded rationality, hidden information, and information asymmetries. This has fundamental implications for the manner in which the self-interested behavior of agents will manifest itself. The article argues that in the context of imperfect information, self-interest can function in a manner quite different from what standard approaches assume. This has been demonstrated by the recent financial crisis. However, there has been limited consideration in mainstream models, both of the neoclassical and institutional type, as to what the exact nature of self-interestedness is, and how this affects the market behavior of agents. The nature of self-interest, therefore, needs to be modeled explicitly to improve the explanatory power of economic theories. |
