Asymmetric Information

a situation in which the parties to a transaction have different information, as when the seller or a used car has more information about its quality then the buyer The economics of information search tells us that everyone falls short of having perfect information. It suggests that everyone will have different information about different things. For example, if you aren't a plumber (nor have any desire to become one), then you aren't likely to seek information about the wages paid plumbers in Boise, Idaho. In contrast, this information could be quite beneficial to plumbers in Pocatello, Idaho. Asymmetric Information for the market occurs when buyers and sellers have different information about a good. Sellers often have better information about a good than buyers because they are more familiar with it. They know more about it's quality, durability, and other features. Buyers, in contrast, have limited contact with the commodity and thus have less information. For example, if you sell a car that you've owned for several years, you know how well it's been maintained, whether or not it needs frequent repairs, and what causes that strange "clanking" sound. A buyer who test drives the car for only a few miles is likely unaware of these facts. And because search cost is positive, the buyer is unlikely to acquire as much information about the car as you already possess. Another common example of asymmetric Information is in the labor market. Workers are knowledgeable about their skills, industriousness, and productivity. Employers, in contrast, have limited information about the quality of prospective workers.