Asymmetric Information and Adverse Selection

Asymmetric Information deals with the study of decisions in transactions where one party has more or better information than the other. Asymmetric information, sometimes referred to as information failure, is present whenever one party to an economic transaction possesses greater material knowledge than the other party. In contrast to neo-classical economics which assumes perfect information.In adverse selection models, the ignorant party lacks information while negotiating an agreed understanding of or contract to the transaction.