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Asymmetric information is an economic model that examines what happens when one party in a transaction knows more than another. For instance, an antique buyer may have researched a set of rare antiques meticulously before showing up to an estate auction and thus may know much more about a certain piece of art than the seller does. The informational asymmetry between buyer and seller can lead to a variety of dilemmas and interesting situations. In particular, information asymmetries cause two problems: adverse selection and moral hazard. So, you own a car you’re now attempting to sell. You obviously have more knowledge of the car’s quality than most perspective buyers. And the car does have some problems but it would take a mechanic to find them, and that would mean additional monies for the potential new owner. Do you reveal al you know about the car’s problems? Why or why not, and think to this week’s Chapter material.
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