The chapter discusses “information asymmetry” as the critically important phenomenon for the very existence of communication. Information asymmetry is the reason the parties need to communicate to allow acquiring needed information and reducing the uncertainty in making decisions, But, from the other side extends the competences as the factor causing misinforming. The chapter presents misinforming hazards by adding the issue of asymmetric competence and double-sided asymmetry. Information asymmetry is a necessary condition for communication, but also is a factor that may cause misunderstanding.
TopInformation asymmetry occurs when one party in a communication transaction has more or better information than the other party. The term originates in economics, addressing commercial transactions, and its impact on markets. The case was called asymmetrical information and related markets are called markets with asymmetrical information. Typically, it is the seller that knows more about the product than the buyer, however, it is possible for the reverse to be true – for the buyer to be better informed compared to the seller.
Examples, where the seller usually has better information than the buyer are numerous and include used-car salespersons, stockbrokers, real estate, and life insurance. On the other hand, there are situations where the buyer is usually better informed than the seller, e.g., in buying property insurance, when a buyer purchases insurance for a property with hidden problems.
The aim of a communication process is to allow one party – the receiver – to obtain information this party needs to solve a problem, or to reduce her/his uncertainty in making a decision regarding how to solve the problem. The other party – the sender – possesses information which may help the receiver in decreasing this uncertainty, or to become informed. Communication is meaningful if the receiver does not possess the information the sender has. Or this is the case when the information asymmetry as the necessary condition for communication exists. This is natural to any meaningful informing process – the sender provides information which the receiver doesn’t have but expects and assumes that it is needed and useful to solve her or his problem.
Information Asymmetry exists in, and it justifies the need of, every communication process, but to a different degree. The objective of the informing process is to reduce uncertainty faced by receiver, based on lack of confidence or lack of certainty regarding the output of action according to given decision. By using the information passed on by the sender, the receiver expects to reach the needed level of certainty regarding the decision and to act in a way to solve the problem. If there is no such asymmetric information, which the one-side (receiver) needs but doesn’t possess and the other side (sender) has and can provide, the process will not accomplish its objectives.