Information asymmetry occurs when one party in a transaction has more or better information than the other. This imbalance can lead to poor decision-making and unfair advantages. For example, in a car sale, the seller may know about hidden defects that the buyer is unaware of, potentially leading to a bad purchase for the buyer. This concept is significant in various fields, including economics and finance. It can affect markets, such as in the case of used cars or insurance, where one party's superior knowledge can result in adverse selection or moral hazard, ultimately impacting overall market efficiency.