What is Information Asymmetry?

Information asymmetry occurs when one party to an economic transaction has more or better information than the other party. Information asymmetry is an economic term, but we use it at Equifax when describing the imbalance of information that can exist between a lender and borrower, or a buyer and seller. This imbalance of information impacts both parties and can kill a transaction.

What is the harm in information asymmetry?

For many of us, it takes years to build a thick credit file. In the U.S., 90 million people are “credit invisible” or have thin files. Furthermore, 46% of those people can be considered as prime or sub prime. But it doesn’t have to be that way. There are now numerous sources of data that can help paint a 360-degree view of a person. They include employment and income, credit, and utility and telecom data. And the amazing thing is that 90% of that data was created in just the last few years.

Watch Prasanna Dhoré, Chief Data & Analytics Officer at Equifax, describe how he was credit invisible as an immigrant, and how our industry can help those who are credit invisible. [embed]https://www.youtube.com/watch?v=t_kuQkSSqoQ[/embed]

How do we minimize information asymmetry?

The data, analytics and identity capabilities that exist today can help close the gap on information asymmetry. Equifax is leading the way by investing in advanced analytics, extracting insights and developing new techniques to protect identities. And we’re using artifical intelligence and machine learning to understand credit behavior. Financial institutions can leverage this data to make more informed decisions about their customers. As a result, they can help minimize information asymmetry. And what’s good for your customers is also good for your bottom line.