Asymmetric Information

Definition

Asymmetric Information is an Information imbalance in a transaction in which one Counterparty possesses more or better information than another party or parties, such as knowledge of hidden issues, costs or risky behavior.

Examples

• Borrowers have better information about their economic circumstances versus lenders
• Buyers of insurance products typically have better information about their level of risk exposure than do the sellers of insurance.

See also

• Adverse Selection
• Moral Hazard