Information Asymmetry: The Silent Deal Killer

The 2001 Nobel Prize in Economic Sciences was awarded jointly to three economists (Akerlof, Spence, Stiglitz) for their work on markets with asymmetric information.

Asymmetric information occurs in a sale where one side of a transaction knows more about what’s being sold than the other – which is the case in just about every B2B sale.

A good example is buying a company. A company is essentially a black box – it’s highly opaque to outsiders – and if you are a buyer you don’t really know what you are getting until you’ve got it.

That’s information asymmetry at work, and that’s why buyers double up. They carry out heavy due diligence but also put plenty of warranties into the purchase contract.

But if you are the buyer of something else, say a SaaS product, you’ve still got the same issue. You don’t really know how the product works, and you don’t really know how the seller is going to treat you after the contract has been signed and they’ve taken your money.

The one thing you do know is that you can’t afford to do the same amount of due diligence as you do on buying a company. Which means, as the buyer, you’re stuck with information asymmetry.

Now flip the situation round. You are the seller. You want the buyer to buy, but you know that information asymmetry makes the buyer nervous and works against the sale. What can you do to reassure the buyer and make it easier for them to buy?

One thing you can do is to produce a contract that is easy to read, of a sensible length, laid out well, written in plain English, and fair and well-balanced.

It’s not a magic wand. It’s not a silver bullet. But it’s a lot better than putting in front of the buyer a contract that does the exact opposite.

16th December 2025