Informational asymmetry may apply to a hidden action or hidden characteristic where the informed party may be reluctant to reveal relevant information.

Question

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Informational asymmetry occurs when one party in a transaction has more or superior information compared to another. This can involve hidden actions (where one party cannot observe the actions of the other) or hidden characteristics (where one party cannot observe the attributes of the other), leading the informed party to potentially withhold relevant information to their advantage.

Informational Asymmetry May Apply to a Hidden Action or Hidden