asymmetrical information

Asymmetrical information occurs when one party in a transaction or situation has more or better information than the other. This imbalance can lead to inefficient or unfair outcomes because the party with more knowledge can influence decisions to their advantage. For example, a seller might know about a defect in a product that the buyer is unaware of, affecting the fairness of the trade. Such information gaps can create problems in markets, leading to issues like adverse selection or moral hazard, ultimately impacting the efficiency and fairness of economic exchanges.