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Information asymmetry is a key concept in economic theories. It refers to situations where one party in a transaction has more or better information than the other. This can create an imbalance of power in transactions, which can sometimes lead to a lack of fairness or inefficiency. For example, in the case of the Ku Klux Klan, they used information asymmetry to maintain an image of mystery and fear. Similarly, real estate agents may have more information about the housing market than their clients, giving them an advantage in negotiations.
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A situation where one person or group has more information than another is a case of information asymmetry. The book explores this concept by looking at the Ku Klux Klan and at modern real estate agents. For over a century the KKK had been a powerful proponent of racist ideology. The group used information asymmetry such as passwords and secret handshakes to maintain an image of mystery and fear. In the 1940s a journalist called Stetson Kennedy infiltrated the group and revealed its secrets on a popular radio program. This helped to turn mystery into ridicule and KKK membership dropped dramatically.
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Author Steven Levitt, working with journalist Stephen Dubner, shows how economic theories can be used to analyze social issues. Each of the six essays...
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