sealPurdue News

October 11, 2001

Purdue prof on Nobel Prize economists

Adam Smith's classic economic theory says that markets are efficient because buyers and sellers have equal access to information and eventually agree upon a price when both consider the transaction as making them better off. This is Smith's famous "Invisible Hand" theory.

Challenging this bedrock economic law, Nobel laureates George Akerlof, Joseph Stiglitz and A. Michael Spence won the Swedish prize for their work on "asymmetric information. "

This theory means either the buyer or the seller has more or superior information. He or she who has more is at an advantage. This has implications not only for formal marketplaces, such as the stock exchanges, but also to markets as seemingly disparate as health care, automotive, international banking and e-Bay.

Finance Professor Raghu Rau researches how information enters marketplaces and how buyers and sellers act on that information.

Rau, an assistant professor of management at Purdue's Krannert School of Management, has been interviewed and quoted in The Wall Street Journal and the Financial Times.

CONTACT: Raghu Rau, (765) 494-4488;

Purdue News Service: (765) 494-2096;

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