When somebody knows more than somebody else. Such asymmetric information can make it difficult for the two people to do business together, which is why economists, especially those practising game theory, are interested in it.

Transactions involving asymmetric (or private) information are everywhere.

A government selling broadcasting licences does not know what buyers are prepared to pay for them; a lender does not know how likely a borrower is to repay; a used-car seller knows more about the quality of the car being sold than do potential buyers.

 

This kind of asymmetry can distort people's incentives and result in significant inefficiencies.

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