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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 the 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 relevant to the decisions they make, and more important, some usually have better information than others. For interactions involving two or more individuals, asymmetric information exists when at least one of them possesses relevant knowledge that others do not have. Asymmetric information is best understood in the context of an exchange between buyers ...

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