Browse Definitions :
Definition

information asymmetry

Contributor(s): Ivy Wigmore

Information asymmetry is an imbalance between two negotiating parties in their knowledge of relevant factors and details. Typically, that imbalance means that the side with more information enjoys a competitive advantage over the other party.

Information asymmetry is relevant to most types of negotiations and is particularly significant to game theory, and the related contract theory, which is the study of how two parties come to terms of agreement despite unknown factors and unequal knowledge. In the most common scenario, a seller has more knowledge of the goods or services he offers than the potential buyer. 

George Akerlof introduced the term information asymmetry in his 1970 article, "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism." Akerlof argued that because people buying cars have less complete information about them than car salesmen do, the salesmen are motivated to sell people cars of less-than-average quality. At the same time, because most buyers can’t differentiate good cars from bad cars (lemons), sellers of good cars can’t sell them for what they are worth, comparatively. Akerlof referred to this situation as the “lemon problem.”

To mitigate the risk of getting a bad deal due to information asymmetry – whether buying a car or negotiating a contract – the best practice involves trying to ensure that you know as much as you can and discussing any areas of uncertainty.

See a lecture on asymmetric information and signaling:

This was last updated in May 2016

Continue Reading About information asymmetry

Start the conversation

Send me notifications when other members comment.

Please create a username to comment.

-ADS BY GOOGLE

Extensiones de Documento y Formatos de Documento

Accionado por:

SearchCompliance

  • compliance audit

    A compliance audit is a comprehensive review of an organization's adherence to regulatory guidelines.

  • regulatory compliance

    Regulatory compliance is an organization's adherence to laws, regulations, guidelines and specifications relevant to its business...

  • Whistleblower Protection Act

    The Whistleblower Protection Act of 1989 is a law that protects federal government employees in the United States from ...

SearchSecurity

  • reverse brute-force attack

    A reverse brute-force attack is a type of brute-force attack in which an attacker uses a common password against multiple ...

  • orphan account

    An orphan account, also referred to as an orphaned account, is a user account that can provide access to corporate systems, ...

  • voice squatting (skill squatting)

    Voice squatting is an attack vector for voice user interfaces (VUIs) that exploits homonyms (words that sound the same but are ...

SearchHealthIT

SearchDisasterRecovery

  • business continuity policy

    Business continuity policy is the set of standards and guidelines an organization enforces to ensure resilience and proper risk ...

  • business continuity and disaster recovery (BCDR)

    Business continuity and disaster recovery (BCDR) are closely related practices that describe an organization's preparation for ...

  • warm site

    A warm site is a type of facility an organization uses to recover its technology infrastructure when its primary data center goes...

SearchStorage

  • RAM (Random Access Memory)

    RAM (Random Access Memory) is the hardware in a computing device where the operating system (OS), application programs and data ...

  • primary storage (main storage)

    Primary storage is the collective methods and technologies used to capture and retain digital information that is in active use ...

  • cache memory

    Cache memory, also called CPU memory, is high-speed static random access memory (SRAM) that a computer microprocessor can access ...

Close