Perfect information

From CEOpedia | Management online
Perfect information
See also

Game theory in simply way shows what perfect information is about. If all players know all earlier turns and decisions of all other then, as things stand, they have perfect information. If players are not observable so decisions made by others are not known players deal with imperfect information. A good example would be chess, the game uses perfect information. In economics, this occurrence is named as hidden action, which have an effect in suboptimal outcomes in comparison with phenomenon with perfect information[1].

Perfect information in practice means that all buyers have all information about all products. Perfect information is needed to realise the effects of static economic efficiency, as players need to know about the availability of goods, resources, processes, and technology and they must know what prices they have, how to use them in the best way and achieve the most effective deals and trades. Market theory preconceive accurate information easily provided to others[2].

Perfect information is not compact with maximizing players, some of them decide to conceal or deform information in their interest. It is hard to distort or withhold information in case of the true perfect market because this type of market ensures high standards of display of products to customers and sellers. In reality, players can hide or deform information, because the accurate information is not divulged by the good[3].

Causes of imperfect information

Roger Mann in his book "Antimarket Economics: Blind Logic, Better Science, and the Diversity of Economic Competition" presents four basic reasons why information is imperfect[4]:

  1. "The information cannot be known at the time the decision to produce or buy must be made (the temporal problem)."
  2. "The information is not revealed by the good or process (the revelation problem)."
  3. "The information is a private, rival good developed and protected as property that is withheld (the property problem)".
  4. "Information can be and is made available to some selected players before others (the insider problem)".

Perfect information in management

Perfect information is occurring when the future can be accurately envisaged, in other words, it is a 100 percent foreseeable fact[5]. The value of perfect information is described in the book „ACCA Approved - F5 Performance Management (September 2017 to June 2018 exams)” as the difference between[6]:

  • „the EV of profit with perfect information”;
  • „the EV of profit without perfect information”,

where „EV” is the expected value.

Imperfect information is not believable, in 100 percent credible, but is useful, because it gives more cognizance than no information whatsoever[7].

Mother wit implies that the value of imperfect information is always less compared with the value of perfect information. The singular exception occurs when the value of perfect and imperfect information is equated to zero. This would take place when the new, added information would not alter the decision[8].

To make perfect resolutions, we need to have perfect information, only then we can have perfect control and command. Perfection cannot be correlated with management, because „perfection for management never has existed and never will. We are fighting too much complexity, too much change and too much uncertainty about the past, present, and future[9]”. We usually own incomplete, erroneous information, which is out of date, not actual. This provides some apparent consequences for management. Imperfect decisions are made when we operate with imperfect information. Management needs to learn how to last with imperfection. The biggest catch is to look for perfect information, this aspect is eventually self-destructive. Impossibility is to find out all there is to know about the trade. The marginal costs and gains make that additional information is uneconomic, even with the progress in technology[10].


  1. T. Weitzel, (2003), p. 58
  2. R. Mann, (1996), p. 32
  3. R. Mann, (1996), p. 32
  4. R. Mann, (1996), p. 40-41
  5. Becker Professional Education, (2017), p. 3104
  6. Becker Professional Education, (2017), p. 3104
  7. Becker Professional Education, (2017), p. 3104
  8. Becker Professional Education, (2017), p. 3104
  9. J. Owen, (2003), p. 67-68
  10. J. Owen, (2003), p. 67-68


Author: Kinga Podlasek