Information asymmetry can have significant impacts on the overall economy. It can lead to market inefficiencies as one party may have more or better information than the other, leading to an imbalance in transaction power. This can result in suboptimal decisions, market failures, and even contribute to economic crises. For instance, in the housing market, if real estate agents have more information about the market conditions than homeowners, they can manipulate the situation to their advantage, potentially leading to market distortions.
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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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Real estate agents profit from information asymmetry. They know a great deal about the housing market and also use code words to communicate with each other. They may hint that there is a problem in the market, to get owners to sell faster; or, they may use coded language in a listing to pass along information to other agents.