Which of the following relationships involves asymmetric information?
A)An employee is unsure what she will spend her annual performance bonus on.
B)A loan applicant knows more about the likelihood her business will be successful than the loan officer.
C)Someone considering buying running shoes looks at a number of online reviews by buyers.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

Asymmetric information refers to a situation where one party in a transaction has more or better information than the other party. In this case, the loan applicant has more information about the likelihood of their business's success, which the loan officer may not have access to, making it difficult for the loan officer to accurately assess the risk of lending to the applicant. The other options do not involve asymmetric information as both parties have access to the same information.

Which of the Following Relationships Involves Asymmetric Information