Information, Risk, and Insurance

Asymmetrical Information Definition

Asymmetric Information Definition

Asymmetric information or information asymmetry is where one party in a transaction has more information than the other. In other words, the seller of a good may know more about its true worth than the consumer of that good.

Principal Agent Problem Definition

Principal-Agent Problem Definition

The Principal Agent Problem occurs when there is a conflict in interest between ‘the principal’, and ‘the agent’. The principal refers to the individual that delegates authority and responsibility to the agent. So the agent acts on behalf of the principal. The problem then arises where the interests of the agent and the principal do not align.

Adverse Selection Definition (1)

Adverse Selection Definition

Adverse selection occurs when either the buyer or seller has more information about the product or service than the other. In other words, the buyer or seller knows that the products value is greater than its worth.