Information asymmetry exists when different parties have different access to knowledge in economic transactions. This can lead to problems like moral hazard when an agent's actions cannot be fully monitored, or adverse selection when hidden characteristics affect the quality of goods being traded. Private markets sometimes address these issues through signaling and screening. While government intervention could potentially improve outcomes, governments themselves are imperfect and subject to issues like the Condorcet paradox, Arrow's impossibility theorem, and policies catering to the median voter rather than others. Additionally, political actors may prioritize self-interest over national interests due to human psychological factors like overconfidence, emotion, and inconsistent decision-making.

1. 22 Frontiers of Microeconomics

13. The Condorcet Voting Paradox Third choice Second choice First choice Percent of electorate Type 3 Type 2 Type 1 Voter Type B A C A C B C B A 20 45 35