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Information asymmetry is a situation where one party in a transaction has more or superior information than the other. This often happens in transactions where the seller knows more than the buyer, although the reverse can also be true. This creates an imbalance of power in transactions which can sometimes cause the transactions to go awry, a kind of market failure in the worst case.
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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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