International Journal of Business and Social Science

ISSN 2219-1933 (Print), 2219-6021 (Online) DOI: 10.30845/ijbss


Dolores Rinke

Society suffers a loss of efficiency when the information upon which market participants rely is insufficient or inaccurate. These real world phenomena have been a major source of our entire financial crisis over the last several years and there is little reason to believe that they will not re-emerge in the future. This paper examines the state of information accuracy in today’s financial markets; why methods used in the past may not be effective and what might be done to counteract this situation. A significant source of inaccurate information rests upon three basic economic principles: (1) principal agent theory, (2) moral hazard and (3) end game phenomenon. An analysis of recent financial situations clearly shows that there are limits to a laissez faire solution. Government intervention, in punishing deliberate misinformation and assigning risk, is necessary. An analysis of the situation also implicitly asserts that there is most likely no single best solution to the problems related to the quality of financial information; rather, there are a number of differing circumstances which require customized solutions. It is the diligence with which regulators are monitored that will determine the magnitude of the losses in future financial market crises.

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