While advances in economic theory in presence of uncertainty tells us that "spreading risks among many bearers improves the functioning of the economy" [so arguing for the expansion of markets], it also warns that "there are large differences of information among market participants and that these differences are not well handled by market forces" [but recognizing that markets may not come to exist, or if they do, they may fail to work].
So, if "...individuals in the market have different degrees of information, the ability to create securities or engage in other forms of contracts becomes limited; the less informed understand that the more informed will take advantage and react accordingly."
He concludes that:
"...the root is this conflict between the genuine social value of increased variety and spread of risk-bearing securities and the limits imposed by the growing difficulty of understanding the underlying risks imposed by growing complexity."
[HT: Al Roth's Market Design blog]
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