Asymmetric Information – The Economics Classroom

Asymmetric Information

When one party in an economic transaction knows information pertinent to the transaction that he or she withholds from the other party in an attempt to get a better deal for him or herself. For example, if a used car dealer knows that a car he’s selling has been in an accident, but does not reveal this to the buyer. Asymmetric information is a source of market failure, since in some markets resources will be mis-allocated due to asymmetric information.

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