This occurs when one party in a transaction has more relevant information than another.

For example - The insurance deductible is a tool for teasing out private information.

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Charles Wheelan, in his book 'Naked Economics' discusses the principle of asymmetric information:

Markets tend to favor the party that knows more. But if the imbalance, or asymmetry of information, becomes too large, then markets can break down entirely.

This was the fundamental insight of 2001 Nobel laureate George Akerlof...


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