Every purchase is based on a belief about the satisfaction that the good or service will provide. In turn, these

beliefs are based on the information that the buyer has available. For many products, the information available

to the buyer or the seller is imperfect or unclear, which can either make buyers regret past purchases or avoid

making future ones.

This chapter discusses how imperfect and asymmetric information affect markets. The first module of the

chapter discusses how asymmetric information affects markets for goods, labor, and financial capital. When

buyers have less information about the quality of the good (for example, a gemstone) than sellers do, sellers

may be tempted to mislead buyers. If a buyer cannot have at least some confidence in the quality of what they

are purchasing, then they will be reluctant or unwilling to purchase the products. Thus, we require

mechanisms to bridge this information gap, so buyers and sellers can engage in a transaction.
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