| > Participants are assumed to share equal information. That is not a requirement for efficiency. Unknowns are factored into the price as "risk". For example, if I am selling you my car, I know its condition a lot better than you do. But, the more you are suspicious about its condition, the less you are willing to pay for it. If you're a crackerjack programmer, my interview process is inexact, so I'm going to discount the salary offer based on how risky it is that you're not a crackerjack. Sellers offer guarantees in order to reduce the customer's risk, and hence be able to sell at a higher price. Investment returns are based on the riskiness of it. I pay more at the post office for less risk of non-delivery. Insurance companies, of course, are an entire industry based on managing risk. Risk is a perfectly normal characteristic of efficient markets, perfect or equal information is not required at all. |
If someone is lying to you and you have no way of knowing it, there's no way to price the risk. Dishonesty can never be eliminated (that's software engineer pedantry) but it's always a drag on efficiency. People who don't trust each other don't engage in trade.
"Risk is a perfectly normal characteristic of efficient markets, perfect or equal information is not required at all."
Risk is a normal characteristic; there are always things you can't measure. Deception is not normal. It's why "capitalism" as practiced in countries where there are no stable legal systems tends to have lower levels of growth.