What is asymmetric information?

Asymmetric information, in economics, is a term used to describe the unequal information that two different parties posses. In other words, it is the imperfect knowledge of individuals in a market and the disparities in the level of knowledge. Generally, asymmetric information is classified as a type of market failure. This term is mostly used in transactions or businesses. A common example of asymmetric information occurs in sales of used goods. In this situation, the owner of the good knowns all the details about the used good in the sale, including all the defects. However, the buyer does not know all this information, unless the buyer makes it available for him/her. This lack of important information could lead to a bad purchase of the consumer if the buyer takes advantage of his/her superior knowledge.