When one part or another knows more about the exchange, it is called:
A) adverse selection.
B) moral hazard.
C) signaling.
D) information asymmetry.

Question

Quizplus · Accepted Answer

Information asymmetry occurs when one party in a transaction has more information than the other party, which can lead to an unfair advantage or risk for one party. This can lead to adverse selection or moral hazard, but information asymmetry is the specific term for the unequal distribution of information in a transaction. Signaling is related, but it refers to actions taken by one party to communicate information to the other party in order to reduce information asymmetry.

When One Part or Another Knows More About the Exchange