Short answers, pulled from the story.
Information economics is the branch of microeconomics that studies how information and information systems affect an economy and economic decisions. It covers topics including information asymmetry, signaling, screening, information goods, and network effects. The subject is classified under Journal of Economic Literature code JEL D8.
In 2001, the Nobel Prize in economics was awarded to George Akerlof, Michael Spence, and Joseph E. Stiglitz for their analyses of markets with asymmetric information. Akerlof developed the theory of adverse selection, Spence pioneered signaling theory, and Stiglitz developed the theory of screening.
George Akerlof's "The Market for Lemons" is a classic paper on adverse selection showing how information asymmetry can undermine markets. In the used car market, buyers cannot distinguish good cars from bad ones (lemons), so they discount all cars. This drives sellers of good cars out, leaving a disproportionate share of lemons and potentially collapsing the market's efficiency.
Michael Spence originally proposed signaling theory to explain how people with private information can credibly communicate it to others. His central example is education: attending college signals an ability to learn to prospective employers, because completing college is easier for skilled learners than for unskilled ones, even if the coursework itself is not directly relevant to the job.
Hayek's essay "The Use of Knowledge in Society" argued that price mechanisms communicate information about scarcity, making central planning inferior to free markets. Although Hayek wrote to discredit central planning, his insight inspired economists including Abba Lerner, Tjalling Koopmans, Leonid Hurwicz, and George Stigler to develop information economics as a formal field.
Information goods are non-rivalrous (one person using information does not prevent another from using it), naturally non-excludable (known information is hard to restrict), and lack market transparency (a buyer must consume information to evaluate it). These properties mean marginal cost pricing is infeasible and basic research may be undersupplied without government subsidization.