Information Asymmetry

Information asymmetry occurs when one party in a transaction has more or better information than the other. This imbalance can lead to less informed decision-making and can cause market inefficiencies or unfair advantages. For example, a used car seller may know about hidden problems with the vehicle that the buyer isn’t aware of, making the seller more able to negotiate favorable terms. Addressing information asymmetry often involves regulations, warranties, or transparency measures to ensure both parties have access to necessary information for fair dealings.