Asymmetric Information

Asymmetric information is the term which is used in the context of economics; it denotes a situation where one individual or group of persons has more knowledge than other individual or group of persons which in turn results in one group taking undue advantage of other group due to more knowledge.

It can be better understood with the help of an example suppose a buyer is buying a land and he or she has knowledge that there is a upcoming government power plant project which will be near that land, but seller is unaware about that fact and therefore he or she will be quoting the price which would be lower because of asymmetric information. Another example would be insider trading which happens in stock markets although it is illegal but it is still done where the person who have insider information about the company tend to buy or sell stock before the news came to general public and therefore taking undue advantage out of such news based information.

As one can see from above asymmetric information leads to benefit for one party and loss for other and therefore it government keep trying to make policies in such a way that there is no scope for asymmetric information. However complete clampdown on above practices is not possible as it is affected by many factors (primary being the greed).



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