Asymmetric information describes a situation where one party in a transaction knows more than the other.  In addition, the information-deficient person might make a different decision if he knew the information being withheld.  Buy/seller negotiations are the most common type of transaction where asymmetric information affects the outcome.The Internet has greatly diminished asymmetric information. For instance, car dealerships used to rely on the traditional haggling between the car salesperson and the buyer -- who did not know the dealer’s wholesale cost -- to set the sale price.  This allowed dealerships to maximize profits on their car sales.  But today, most car buyers enter the dealership already aware of the dealer’s cost and the true price of each add-on feature. As a result, dealership profit margins have dropped for their car sales revenue. Asymmetric information generally leads to two different types of problems. One is adverse selection where someone assumes risk without being informed of all the facts relevant BEFORE the risk was assumed.  For instance, an insurance company sets a life insurance premium for Fred at a low price because Fred is young and in good health.  But Fred does not inform the insurance company that he is an avid skydiver. Another problem is moral hazard, which takes advantage of asymmetric information AFTER a transaction takes place.  For instance, drivers might not be as careful as they should be because they know they are insured and will be reimbursed for any damages.