Which of the following is an example of asymmetric information?
A) When someone is applying for a job, the employer checks references to determine the previous work habits of the applicant.
B) When an employee purchases group life insurance without taking a physical exam, she knows more about her health than does the insurance company.
C) When someone is considering buying a used car from a dealership, the potential buyer requests documentation of the repair history of the car.
D) All of the above are correct.

Question

Quizplus · Accepted Answer

Asymmetric information occurs when one party in a transaction has more information than the other party. In this case, the employee has more information about their health than the insurance company, which could potentially lead to adverse selection or moral hazard. Choices A and C are examples of information gathering to reduce asymmetric information in the transaction.

Which of the Following Is an Example of Asymmetric Information