Asymmetric Information

Neoclassical economics is founded on the assumptions of complete and symmetric information. Information is complete when all parties to a transaction know, or have access to, all information that ought to be relevant to their activities. Information is symmetric when all parties know all relevant information possessed by others involved in an exchange. However, most economic activities involve some failure to meet these conditions. People often do not possess full information related to decisions they make, and more important, some people usually have better information than others. When two or more individuals interact, asymmetric information exists when at least one individual possesses relevant knowledge that others do not have. Asymmetric information pertains only to situations involving interactions of two or more people.

Asymmetric information is best ...

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