You can completely eliminate asymmetrical information

Information asymmetry

Differentiation: symmetrical and asymmetrical information

The concept of information asymmetry comes from information economics [cf. on this Schiller 2007]. In order to understand it better, a distinction is first made between symmetrical and asymmetrical information. From an economic point of view, symmetric information is ...

  • the Basic conditionfor functioning in the standard model of welfare economics;

  • aAssumption in the model of perfect competition, in which information is complete or free of charge - i.e. without procurement costs.

Against it is asymmetric information given if ...
  • several people with different levels of knowledge interact;

  • the procurement of information causes (different levels of) costs.


The following systematisation can be made for the concept of information asymmetry:



Fig. 1: Systematisation [own illustration]

Accordingly, the consequences of asymmetrical information can be presented in two categories: The Adverse selection (also "negative selection") describes a state before the conclusion of a contract in which undesirable results systematically occur in a market. The Moral hazardthreatens when there is an unresolved contradiction between what is reasonable for the general public (for the collective) and what is reasonable for the individual [cf. Varian 1999]. This risk of behavior change can occur both before and after the occurrence of the damage.

Defense against information asymmetries

Various measures are available to prevent this information asymmetry from leading to inefficient markets [cf. Shapiro / Varian 1999]:

  • Signaling: Informed market participants try to reduce information asymmetries through targeted information (e.g. a seal). The benefits of signal production must be greater than the cost of the signal.
  • Screening: The uninformed side of the market incurs costs in order to reduce the information asymmetries through structured information procurement.
  • Self-selection: With this measure, versions are offered so that the good providers and the bad providers can choose different contracts.

Literature and further sources

Ahituv, N .; Neumann, S .; Riley, H.N .: Principles of information systems for management. 4th ed. Edition, Business and Educational Technologies, Dubuque, Iowa, 1994.

Husmann, C .: Investment controlling: Approaches to overcome information asymmetries in the decision-making process about investments in decentralized industrial companies. Eul, Bergisch Gladbach [et al.], 1996.

Kruse, K.-O .: Incentive Systems in Buyer-Supplier Cooperations. Kovac: Hamburg, 1998.

Schiller, U .: Information Economics. In: Concise dictionary of business economics - Encyclopedia of business economics; Vol. 1. Ed .: Richard Köhler; Hans-Ulrich Küpper; Andreas Pfingsten, 6th, completely redesigned edition /. Edition, Schäffer-Poeschel, Stuttgart, 2007, pp. 742-750.

Shapiro, C .; Varian, H.R .: Information rules: a strategic guide to the network economy. Harvard Business School Press: Boston, Mass., 1999.

Varian, H.R .: Fundamentals of Microeconomics. (4th, revised and expanded edition). Munich [inter alia]: Oldenbourg. - by Hal R. Varian, 1999.




Prof. Dr. Helmut Krcmar, Technical University of Munich, Faculty of Computer Science, Chair of Business Information Systems, Boltzmannstr. 3, 85748 Garching, Germany

Author info

Item Actions