Asymmetric Information
Plain definition
Asymmetric information exists when one party in a transaction knows more than the other — for example, a seller knowing more about a used car's quality than the buyer.
In economics
It is a classic source of market failure, producing adverse selection (bad risks drive out good) and moral hazard (hidden actions after the deal). Signaling and screening are market responses; disclosure laws and warranties are policy responses.
Example
A job applicant knows their own work ethic far better than a hiring employer, which is why employers demand resumes, references, and interviews.
Common confusion
Asymmetric information is not about lying; it is about one side lacking information the other has, even when everyone is honest.