When one party to an exchange has more or better information than the other party, it is called:
A) adverse selection.
B) information asymmetry.
C) moral hazard.
D) the principle-agent problem.

Question

Quizplus · Accepted Answer

Information asymmetry occurs when there is an imbalance in the information possessed by parties involved in an exchange. One party may have more or better information, which can result in an unfair advantage in the transaction. This can lead to adverse selection, moral hazard, and the principle-agent problem, but information asymmetry is the specific term for this type of situation.

When One Party to an Exchange Has More or Better