17.1 : Complete Information and Asymmetric Information: Meaning

Complete information is a situation where all participants in a transaction have full knowledge of all the relevant information.

For example, in perfect competition, buyers and sellers have full information about product prices and the quality of the products available in the market.

However, in reality, different parties in a transaction have different levels of information. Sometimes, buyers have more information, and sometimes, sellers have more information. 

For example, customers who buy an insurance plan have more knowledge about their health than the insurance company providing the coverage. This includes information on their smoking habits, dietary patterns, and any genetic conditions that might affect their health.

In markets for used cars, sellers of the cars have more information about their vehicle condition than buyers. This knowledge includes the car's accident history and the quality of repairs conducted.

So, when one party to a transaction knows more than the other, it is called asymmetric information.

Asymmetric Information can cause market failure because one party’s greater knowledge leads the other party to make suboptimal decisions, which can then decrease benefits for both parties over time.