Final answer:
A developer faces compounded risks due to imperfect market information, with both buyers and sellers being uncertain about product qualities. Despite these challenges, specific mechanisms can mitigate the risks and enable market transactions.
Step-by-step explanation:
The risks that a developer normally faces due to complex tasks and limited market information are further compounded by the uncertainty related to imperfect information in the market. Buyers and sellers are often less than 100% certain about the quality of what they are buying or selling, and this can make it challenging for a market to exist when information is highly imperfect.
For instance, in the context of real estate development, poor design decisions made early in the process can lead to an inability to meet customer needs. Moreover, buyers of various goods and services, such as gemstones or used cars, cannot be experts in evaluating quality.
Similarly, employers and lenders cannot know with certainty whether workers will perform satisfactorily or borrowers will repay loans. Nevertheless, certain mechanisms can be put in place to reduce these risks associated with imperfect information, making it possible for transactions to proceed.