in which of the following situations is an information asymmetry likely to cause problems? multiple choice parents know more than their children about how to write a good college application. people who book hotel rooms online know less about the quality of the room they are reserving than the hotel's management.

People who book hotel rooms online know less about quality of room they are reserving than hotel's management is a situation where information asymmetry is likely to cause problems.

What is information asymmetry?

Information asymmetry is the study of choices made in situations where one party has access to better or more information than the other. It is a topic covered in both contract theory and economics. When there is an imbalance of power in transactions due to information asymmetry, the transactions may occasionally be ineffective, which could, in the worst case scenario, lead to market failure. A scale with the buyer on one side and the seller on the other is a classic visual representation of knowledge asymmetry. However, the purchaser may also hold some of the power. It is not always necessary for the buyer of health insurance to provide all pertinent information about potential future health risks. The balance of power between two agents when there is perfect information is depicted in the accompanying graphic.

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