In economics and contract theory, information asymmetry deals with the study of decisions in transactions where one party has more or better information than the other. In contrast to neo-classical economics which assumes perfect information, this is about "What We Don't Know". This creates an imbalance of power in transactions which can sometimes cause the transactions to go awry, a kind of market failure in the worst case. Examples of this problem are adverse selection, moral hazard, and information monopoly. Most commonly, information asymmetries are studied in the context of principal–agent problems. Information asymmetry causes misinforming and is essential in every communication process.
In 2001, the Nobel Prize in Economics was awarded to George Akerlof, Michael Spence, and Joseph E. Stiglitz for their "analyses of markets with asymmetric information."
Read more about Information Asymmetry: Information Asymmetry Models, Adverse Selection, Application of Information Asymmetry in Research
Famous quotes containing the word information:
“I have all my life been on my guard against the information conveyed by the sense of hearing—it being one of my earliest observations, the universal inclination of humankind is to be led by the ears, and I am sometimes apt to imagine that they are given to men as they are to pitchers, purposely that they may be carried about by them.”
—Mary Wortley, Lady Montagu (1689–1762)