The rapid growth of digital platforms and algorithm-driven content distribution in today’s world has made it easier than ever for disinformation and misinformation to spread. Many researchers like Alice Marwick from the Center for Information, Technology, & Public Life (CITAP) at the University of North Carolina at Chapel Hill found that the consequences of information disorder are multifaceted and profoundly affect various aspects of society, including political and economic behaviours worldwide. Yet, with little or no barrier to entry, it is concerning how the digital information space has been flooded with false information, challenging fact-checker efforts and the push for accurate information, as scholars at the Queen’s University of Charlotte found.
Nonetheless, Information economics provides another way of looking at the real-world issues of information disorder, such as misinformation, malinformation, and disinformation, and their effects on democracy. As a concept in microeconomics, “information economics” examines the source and spread of information that impacts economic behaviour and attitude, as well as market failure, which can arise from such imperfect information among buyers and sellers. This means the market price fails to reflect a product’s actual cost or benefits. In other words, when markets fail to efficiently allocate resources or produce optimal outcomes, such a market economy is said to have failed.
As such, market failure in the context of information disorder refers to situations where the production or consumption of information leads to inefficient outcomes. Hence, a negative externality of disinformation/misinformation erodes public trust and rational decision-making. A flawed information market that is filled with false information directly undermines individuals’ ability to make informed political choices, and a spillover effect from the proliferation of false narratives significantly disincentivises people from seeking out factual information, leading to substantial social consequences which impact democratic institutions, market systems, civic engagement, and downstream health outcomes, among others.
Just as democracy, as opined by Abraham Lincoln, is to yield leaders who embody the will of the people and pursue the populace’s interests, inaccurate information and inaccessibility can impede this process, leading to outcomes that do not reflect the populace’s desire. Hence, we can see how these concepts provide insights into protecting democracy by addressing the systematic issues in information ecosystems, ensuring transparency, promoting accountability, and empowering citizens with accurate and accessible information.
Forms of Information Disorder
To thoroughly understand the multifaceted ways in which false contexts taint the information digital landscape, information disorder has been widely classified into three distinct types: misinformation, disinformation, and malinformation. This classification is conveniently summarised by the MDM, which highlights the varying degrees of perceived falsehood and the resultant harm inflicted on individuals and society.
Misinformation refers to the unintentional spread of inaccurate information, where individuals share content they genuinely believe to be true, albeit mistaken. In contrast, disinformation involves deliberately disseminating falsehoods to deceive and inflict harm. Despite the differing motivations behind these two forms of information disorder, both exert significant negative externalities, impacting others adversely regardless of the original intent of the distributors.
Lastly, malinformation represents a more insidious form of communication in which factual information is shared with the express purpose of causing harm. This deliberate manipulation of truth underscores a troubling aspect of our digital interactions, revealing how even accurate information can be weaponized to inflict damage. Together, these categories illuminate the complex nature of information pollution in our interconnected world.
From Economic Theory to Remedy
The shift from the traditional neo-classical assumption of perfect information represents a significant transformation in economic theory, recognizing that this ideal does not adequately capture the complexities of information flow within society. In response to this realization, the information economics theory has emerged, providing a detailed examination of how information impacts decision-making processes. This theory asserts that an economy can never attain a perfect level of information; individuals often operate with varying degrees of knowledge. As a result, these differences in information access can lead to crucial issues, such as adverse selection, where one party in a transaction possesses more information than the other, and moral hazard, which occurs when parties may engage in riskier behaviours due to a lack of transparency. By exploring these concepts, the theory illuminates the intricate relationship between information and economic behaviour, shedding light on the challenges that arise in real-world scenarios.
Information asymmetry is a fundamental concept within information theory. It highlights the inherent imbalance that often exists in interactions between economic agents. This imbalance typically arises when one party possesses significantly more information than the other, creating a gap that can lead to inefficiencies and misunderstandings.
When individuals are not accurately informed, they risk making poor decisions, a phenomenon known as adverse selection. This occurs when the uninformed party unintentionally chooses an option that may not be in their best interest, often to the detriment of their financial or strategic goals.
In response to the challenges posed by information asymmetry, Michael Spence, a Canadian-American economist and Nobel laureate, introduced the signalling concept. In this approach, a more informed individual takes proactive steps to convey their knowledge through credible signals, helping the other party understand the true nature of the situation.
Conversely, Joseph E. Stiglitz, an American economist and a professor at Columbia University, proposed the idea of screening. In this approach, an uninformed person takes the initiative to induce the informed party to reveal their hidden information honestly. Through screening, the less informed individual can make more informed decisions by prompting the expert to share valuable details that might remain undisclosed. Together, these theories illustrate the dynamic ways of navigating societal information gaps.
Nonetheless, Mayowa Tijani, a journalist and disinformation research expert, explains that platforms like the International Fact-Checking Network (IFCN) exist based on the signaling principle. He added that among its functions, IFCN provides credible seals that indicate trustworthiness, which has proven helpful.
Yet even more, on social media, we see the deployment of screening by fact-checking organizations engaged on platforms like Meta, which then implement algorithms to diminish the spread of flagged or screened false narratives. However, platforms like X crowdsource fact-checking to reduce information asymmetry by elevating credible content. This shows “screening as a principle in information economics, being used in filtering out disinformation on social media platforms such as Facebook, Instagram and X”, said Tijani. He further added that “finetuning these processes definitely will help in achieving the kind of outcomes that information theory preaches.”
The Way Forward
Approaching the issue from the perspective of information economics theory allows us to uncover the nuanced implications of information disparity and the challenges posed by disinformation within our democratic and economic institutions. Understanding these dynamics opens up a constructive dialogue about collectively strengthening our systems. By addressing the unequal access to information, we can enhance public trust and facilitate more informed decision-making.
Signaling and screening can effectively address the critical issue of asymmetry within the information ecosystem. Promoting media literacy to sensitize the public to recognise credible signals and sources of information is an essential element of this endeavour.
Also, digital and information institutions or stakeholders should develop incentives to share accurate information to encourage more responsible public behaviour towards information sharing.
References
Bipartisan Policy Center. Information Disorder. https://bipartisanpolicy.org/download/?file=/wp-content/uploads/2022/08/information-disorder-draft-3-1.pdf
Cattich, R. (2022). Misinformation as a Negative Externality: Theory to Remedy.Boston College. Chestnut Hill, Massachusetts
Council of Europe, Information Disorder. https://www.coe.int/en/web/freedom-expression/information-disorder
Lan Ge, C., Brewster, A. (2016). Informational institutions in the agrifood sector: meta-information and meta-governance of environmental sustainability, Current Opinion in Environmental Sustainability, Volume 18, Pages 73-81, ISSN 1877-3435,
TheoryHub. Information Economics. An online resource for academic theories. ISBN: 978-1-7396044-0-0
Reuer, J. & Bisui S. (2022). Information Economics. Oxford Bibliographies. https://www.oxfordbibliographies.com/display/document/obo-9780199846740/obo-9780199846740-0209.xml
