Asymmetric Information

Asymmetric information refers to situations where one party in a transaction has more or better information than the other. This imbalance can lead to problems, such as unfair advantages or poor decision-making. For example, in a used car sale, the seller may know more about the car's condition than the buyer. This can result in the buyer overpaying or buying a faulty car. Asymmetric information is significant in economics and business because it can cause market inefficiencies and lead to mistrust between parties. Addressing this imbalance is crucial for fair and effective transactions.