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Asymmetric Information

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PPGPortal > Home > Concept Dictionary > A > Asymmetric Information
 
Asymmetric Information

Differences in the information available to buyers and sellers participating in an exchange.

(Dwayne Benjamin, PPG 1002)

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For example, individuals are sometimes not perfectly informed about the quality of the goods being sold on the market. In the case of used cars, the seller almost always knows more about the quality of the product he is selling than the buyer. This sort of asymmetrical information is an important cause of market failure.

Asymmetrical information creates the problem of "adverse selection". Adverse selection occurs when undesirable results occur due to information asymmetries between buyers and sellers. Adverse selection becomes a problem when one side of the market can’t observe the “type” or quality of the goods on the other side of the market.

     

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