Information Asymmetry is one party has more or better information than another. It sits in the Cognition dimension (COG) of the Human Behavior Taxonomy™ as element HBT-COG-0402, within the Economics family. The core principle: one party has more or better information than another. In incentive terms, it matters because it changes the payoff people perceive before they choose — which means it can be designed for, or exploited.
Scientific Definition
One party has more or better information than another.
Plain-English Definition
One party has more or better information than another.
Feynman Explanation
The seller knows the flaw. The buyer learns the hard way.
Core Principle
One party has more or better information than another.
Mechanisms
Pending editorial review.
One party has more or better information than another.
Pending editorial review.
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Markets and negotiations are shaped by who knows what.
Inputs (Triggers)
Pending editorial review.
Outputs (Behaviors)
Pending editorial review.
Behavioral Signature
The seller knows the flaw. The buyer learns the hard way.
Examples
- A job candidate knows their weaknesses better than the interviewer.
- Markets and negotiations are shaped by who knows what.
Pending editorial review.
Original analysis from The Incentives Lab — how this element behaves inside real payoff structures.
Why this element matters to incentive design
Most organizations meet this element as a personnel problem. It is not one. The mechanism underneath it is straightforward: one party has more or better information than another. You can recognize it in the field by its signature: the seller knows the flaw. The buyer learns the hard way. Every element in the Cognition dimension changes the perceived payoff of an action before the action happens, which is exactly where incentive design has leverage.
How it gets exploited
Left undesigned, markets and negotiations are shaped by who knows what. It is amplified whenever markets and negotiations are shaped by who knows what. Inside organizations that shows up as markets and negotiations are shaped by who knows what. The pattern is the same one Goodhart's Law describes: the measurable proxy attracts the effort, and the purpose behind it quietly loses funding.
How the Lab designs around it
The redesign move is to reduce asymmetry through verification, signals, and transparency. The test of any redesign here is simple: after the change, can you name what the organization is now doing less of? If not, the payoff structure did not actually move.
Famous Experiments
Pending editorial review.
Design Principles
- Reduce asymmetry through verification, signals, and transparency.
Measurement Approaches
Pending editorial review.
Evidence
Pending editorial review.
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The Perverse Incentive Lens™
How this behavior is exploited — and how to redesign around it.
- Reduce asymmetry through verification, signals, and transparency.
Pending editorial review.
Pending editorial review.
Interactive Mini Network
Click any neighbor to re-center the graph and follow the threads of connection.
Knowledge Graph Neighbors
Auto-linked to the rest of the Human Behavior Taxonomy by family, domain, dimension, and shared keywords.
Exploiting price differences between markets for risk-free profit.
The study of how real humans actually decide — bounded, social, emotional, and inconsistent.
With clear property rights and low transaction costs, parties negotiate to efficient outcomes.
Specialize in what you give up the least to do.
Complements raise each other's value; substitutes lower it.
Fixed costs don't scale with output; variable costs do.
Innovation destroys old industries and creates new ones.
Each additional unit produces less marginal benefit.
A long-run planner self in conflict with a short-run impulsive self.
Owning something raises its valuation — sellers want more to give it up than buyers will pay to acquire.
Bad money drives out good when both are legally equivalent.
The mythical fully rational, self-interested, utility-maximizing agent neoclassical models assume.
Where Information Asymmetry is cited in the corpus
Essays, field guides, and diagnostics from The Incentives Lab that apply this element.
- EssayGoodhart's Law in the Real World
How measurable proxies capture judgment.
- EssayThe Perverse Incentives Hiding in Your KPIs
Cognitive shortcuts turned into scorecards.
- EssayAI Agents Inherit Your Incentives
How this element propagates into automated systems.
- ReferenceThe incentive glossary
Definitions for every mental model, bias, and fallacy in the corpus.
- CourseIncentives 101
The free ten-part primer on reading a payoff structure.
- ReferenceThe Periodic Table of Human Behavior
The full 1,267-element map this page belongs to.
Questions about Information Asymmetry
- What is Information Asymmetry?
- Information Asymmetry is one party has more or better information than another. It sits in the Cognition dimension (COG) of the Human Behavior Taxonomy™ as element HBT-COG-0402, within the Economics family. The core principle: one party has more or better information than another. In incentive terms, it matters because it changes the payoff people perceive before they choose — which means it can be designed for, or exploited.
- What is an example of Information Asymmetry?
- Markets and negotiations are shaped by who knows what. The Incentives Lab catalogs everyday, organizational, and historical instances of this element on its Human Behavior Taxonomy™ page (HBT-COG-0402).
- How is Information Asymmetry exploited?
- Markets and negotiations are shaped by who knows what.
- How do you design around Information Asymmetry?
- Reduce asymmetry through verification, signals, and transparency.
- Which behavioral dimension does Information Asymmetry belong to?
- Information Asymmetry is classified in the Cognition dimension (COG) of the Human Behavior Taxonomy™, family "Economics", class "Mental Model". Its permanent identifier is HBT-COG-0402 and its evidence grade is B.