|
| |
John Spacey, November 16, 2015 updated on January 03, 2023
Information asymmetry is a situation in which some participants have better information than others. This creates an imbalance of power. The following are illustrative examples.MarketsInsiders and friends of insiders who know something about how well a firm is doing before earnings are released. This is an example of information asymmetry that is detrimental to the reputation of markets such that it represents a systemic risk to economies.
ContractsFriends of government officials who know something that gives them an advantage in securing government contracts and jobs. This is known as cronyism.PaywallsPaywalls that make it difficult to access research, news and information from the most authoritative sources. This creates a digital divide based on socioeconomic status.Professional ServicesAccess to professional advice such as the advice of a competent doctor or lawyer. This can be expensive creating a divide based on financial resources unless healthcare and legal aid is provided as a public service.
Power ImbalanceA power imbalance such as a large firm that has 14 lawyers involved in drafting its terms of service and a consumer who has no time to read the complex agreements that they are agreeing to on a regular basis in order to secure basic services.Seller's AdvantageGenerally speaking, the seller of a product, service or asset knows more about what they are selling than the buyer. For example, a person selling a home who knows that one neighbor is suspicious, mildly hostile and unfriendly.
Economics
This is the complete list of articles we have written about economics.
If you enjoyed this page, please consider bookmarking Simplicable.
© 2010-2023 Simplicable. All Rights Reserved. Reproduction of materials found on this site, in any form, without explicit permission is prohibited.
View credits & copyrights or citation information for this page.
|
