Information asymmetry

information asymmetriesasymmetric informationimbalances in informationasymmetryasymmetry of informationdistorted informationimperfect informationinformation costsinformational asymmetrylack information
In contract theory and economics, information asymmetry deals with the study of decisions in transactions where one party has more or better information than the other.wikipedia
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Market failure

market failuresmarket imperfectionmarket imperfections
This asymmetry 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.
Market failures are often associated with public goods, time-inconsistent preferences, information asymmetries, non-competitive markets, principal–agent problems, or externalities.

Moral hazard

consequences of the great risksbreakdown in accountabilitydemoralizing effect
Examples of this problem are adverse selection, moral hazard, and monopolies of knowledge.
Moral hazard can occur under a type of information asymmetry where the risk-taking party to a transaction knows more about its intentions than the party paying the consequences of the risk.

Adverse selection

adverse selection spiraladversely selectselection
Examples of this problem are adverse selection, moral hazard, and monopolies of knowledge. The classic paper on adverse selection is George Akerlof's "The Market for Lemons" from 1970, which brought informational issues to the forefront of economic theory.
When buyers and sellers have different information, it is known as a state of asymmetric information.

Principal–agent problem

agency theoryprincipal-agent problemagency problem
Information asymmetries are studied in the context of principal–agent problems where they are a major cause of misinforming and is essential in every communication process.
The problem arises where the two parties have different interests and asymmetric information (the agent having more information), such that the principal cannot directly ensure that the agent is always acting in their (the principal's) best interest, particularly when activities that are useful to the principal are costly to the agent, and where elements of what the agent does are costly for the principal to observe (see moral hazard and conflict of interest).

Contract theory

contract designcontract theoriescontract theorist
In contract theory and economics, information asymmetry deals with the study of decisions in transactions where one party has more or better information than the other.
In moral hazard models, the information asymmetry is the principal's inability to observe and/or verify the agent's action.

The Market for Lemons

market for lemonsThe Market for Lemons: Quality Uncertainty and the Market Mechanismlemon
The classic paper on adverse selection is George Akerlof's "The Market for Lemons" from 1970, which brought informational issues to the forefront of economic theory.
"The Market for Lemons: Quality Uncertainty and the Market Mechanism" is a well-known 1970 paper by economist George Akerlof which examines how the quality of goods traded in a market can degrade in the presence of information asymmetry between buyers and sellers, leaving only "lemons" behind.

George Akerlof

George A. AkerlofAkerlof
The classic paper on adverse selection is George Akerlof's "The Market for Lemons" from 1970, which brought informational issues to the forefront of economic theory. In 2001 the Nobel Memorial Prize in Economics was awarded to George Akerlof, Michael Spence, and Joseph E. Stiglitz for their "analyses of markets with asymmetric information".
Akerlof is perhaps best known for his article, "The Market for Lemons: Quality Uncertainty and the Market Mechanism", published in Quarterly Journal of Economics in 1970, in which he identified certain severe problems that afflict markets characterized by asymmetric information, the paper for which he was awarded the Nobel Memorial Prize.

Joseph Stiglitz

Joseph E. StiglitzStiglitzStiglitz, Joseph
In 2001 the Nobel Memorial Prize in Economics was awarded to George Akerlof, Michael Spence, and Joseph E. Stiglitz for their "analyses of markets with asymmetric information".
It was for this contribution to the theory of information asymmetry that he shared the Nobel Memorial Prize in Economics in 2001 "for laying the foundations for the theory of markets with asymmetric information" with George A. Akerlof and A. Michael Spence.

Perfect information

imperfect informationfull-knowledgeimperfect
Information asymmetry is in contrast to perfect information, which is a key assumption in neo-classical economics.

Economics

economiceconomisteconomic theory
In contract theory and economics, information asymmetry deals with the study of decisions in transactions where one party has more or better information than the other. The classic paper on adverse selection is George Akerlof's "The Market for Lemons" from 1970, which brought informational issues to the forefront of economic theory.
Information asymmetry arises here, if the seller has more relevant information than the buyer but no incentive to disclose it.

Market (economics)

marketmarketsmarket forces
Akerlof demonstrates that it is even possible for the market to decay to the point of nonexistence.
Market failures are often associated with time-inconsistent preferences, information asymmetries, non-perfectly competitive markets, principal–agent problems, externalities, or public goods.

Tshilidzi Marwala

Tshilidzi Marwala and Evan Hurwitz in their study of the relationship between information asymmetry and artificial intelligence observed that there is less level of information asymmetry between two artificial intelligent agents than between two human agents.
Marwala together with Evan Hurwitz proposed that there is less level of information asymmetry between two artificial intelligent agents than between two human agents and that the more artificial intelligence there is in the market the less is the volume of trades in the market.

Real prices and ideal prices

ideal pricescannot be trueideal price
It plays an important role in the theory of information asymmetry to which Joseph Stiglitz has made important contributions.

Evan Hurwitz

Tshilidzi Marwala and Evan Hurwitz in their study of the relationship between information asymmetry and artificial intelligence observed that there is less level of information asymmetry between two artificial intelligent agents than between two human agents.
Hurwitz together with Tshilidzi Marwala proposed that there is less level of information asymmetry between two artificial intelligent agents than between two human agents and that the more artificial intelligence there is in the market the less is the volume of trades in the market.

Information

informativeinputinputs
In contract theory and economics, information asymmetry deals with the study of decisions in transactions where one party has more or better information than the other.

Monopolies of knowledge

knowledge monopolymonopolymonopoly of knowledge
Examples of this problem are adverse selection, moral hazard, and monopolies of knowledge.

International relations theory

international relationstheory of international relationsInternational relations theorists
International relations theory has recognized that wars may be caused by asymmetric information and that "Most of the great wars of the modern era resulted from leaders miscalculating their prospects for victory".

Misinformation

fakefalse informationfalse intelligence
Information asymmetries are studied in the context of principal–agent problems where they are a major cause of misinforming and is essential in every communication process.

Communication

communicationsSocial Communicationcommunicate
Information asymmetries are studied in the context of principal–agent problems where they are a major cause of misinforming and is essential in every communication process.

Neoclassical economics

neoclassicalneoclassical economistsneo-classical economics
Information asymmetry is in contrast to perfect information, which is a key assumption in neo-classical economics.

Nobel Memorial Prize in Economic Sciences

Nobel Prize in EconomicsNobel PrizeEconomics
In 2001 the Nobel Memorial Prize in Economics was awarded to George Akerlof, Michael Spence, and Joseph E. Stiglitz for their "analyses of markets with asymmetric information".

Michael Spence

A. Michael SpenceSpenceAndrew Michael Spence
In 2001 the Nobel Memorial Prize in Economics was awarded to George Akerlof, Michael Spence, and Joseph E. Stiglitz for their "analyses of markets with asymmetric information".

Insurance

insurance companyinsurance companiesinsurance industry
An example of adverse selection is when people who are high-risk are more likely to buy insurance because the insurance company cannot effectively discriminate against them, usually due to lack of information about the particular individual's risk but also sometimes by force of law or other constraints.