Information Asymmetry

02What People Think

“We are discussing the same deal, so we must be making the decision from the same facts.”

03What’s Underneath

Two people divide their belongings after a breakup. One knows an old vase is collectible and insists it is the only thing worth taking. The other sees an ordinary container. Their different choices may look like different tastes, but a relevant piece of knowledge is distributed unevenly.

Information asymmetry means one party knows something relevant that another does not. A seller may know more about an object’s condition; a borrower may know more about repayment prospects. The gap can influence which offer is accepted, what price seems reasonable and whether an exchange takes place.

An information gap does not require a lie. Expertise, experience or access can produce one without deliberate concealment. It is also different from shared uncertainty: if neither roommate knows whether the roof leaks, both lack information. Adverse selection and moral hazard describe particular problems that can arise around information and incentives, rather than serving as synonyms for every uneven conversation.

04The Game

Which fact could change the decision, who knows it now, and who is pricing or agreeing without it? That gap may matter more than the apparent generosity of the offer.