TL;DR

Sellers know more about their product than buyers do. Reviews, testimonials, and transparent social proof directly reduce this gap, making buyers more confident and conversions more likely.

Key Points

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First rigorously analyzed by Akerlof (1970) in the context of used car markets, where sellers know the car's history but buyers do not.

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In digital markets, information asymmetry is severe: buyers cannot physically inspect products, meet teams, or verify claims.

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Customer reviews and testimonials are the primary mechanism by which buyers pool their collective knowledge to balance the information gap.

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Reducing information asymmetry increases market efficiency — products that are genuinely better get more sales, and bad products lose customers faster.

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[[transparency]] and [[authenticity]] are the brand-side behaviors that most effectively signal a willingness to reduce asymmetry.

How Reviews Reduce Information Asymmetry

Before a customer reviews a product, their experience — whether positive or negative — is private information inaccessible to future buyers. Review systems convert that private information into public signals, fundamentally shifting the information balance in buyers' favor. A prospect researching a SaaS tool can read hundreds of detailed user experiences in minutes, learning about onboarding friction, support quality, edge-case limitations, and pricing surprises that no marketing page would voluntarily disclose. This is why platforms like G2, Capterra, and Trustpilot have become essential buying resources — they are institutionalized information asymmetry reducers ^[1]. For sellers, this dynamic creates a powerful incentive: genuinely good products benefit disproportionately from review systems, while poor products suffer. Competing on quality and then actively collecting reviews is the optimal strategy in a world of low information asymmetry.

ShowTrust's Role in Bridging the Gap

ShowTrust is fundamentally an information asymmetry reduction tool. By making it easy to collect, organize, and display authentic customer testimonials and reviews, it transfers real-world user knowledge from satisfied customers to skeptical prospects. The more specific and detailed the testimonial — outcomes achieved, time to value, specific features used, problems solved — the more information it transfers and the more effectively it bridges the gap. Video testimonials are especially effective because they carry rich contextual information (tone, setting, specificity) that is difficult to fake and hard to dismiss. Displaying social proof via Wall of Love pages, grids, and real-time notifications means that information is available at every touch point where a prospect might be forming their judgment, not just on a single 'reviews' page tucked away in the navigation.

Sources & References

Information asymmetry — Wikipedia ↗

Last updated: June 9, 2026

Related Terms

Trust Signal

A trust signal is any element on a website, in marketing material, or within a communication that helps reduce visitor skepticism and build confidence in a brand, product, or service. Trust signals work by providing external validation, demonstrating competence, or lowering the perceived risk of taking an action.

Social Proof

Social proof is the psychological phenomenon where people copy the actions of others in ambiguous situations, assuming those actions reflect correct behavior. First articulated by Robert Cialdini in his 1984 book *Influence*, it is one of the most powerful forces driving purchasing decisions online.

Customer Review

A customer review is feedback, ratings, and opinions shared publicly by customers about their experience with a product or service. Reviews exist on third-party platforms, e-commerce sites, and brand-owned pages, collectively forming one of the most trusted signals in the modern buyer journey.

Transparency

Transparency is the practice of being open, honest, and candid about business operations, pricing, review collection methods, and customer relationships — a cornerstone of long-term brand trust that distinguishes companies willing to be held accountable from those managing perception. In the context of reviews and testimonials, transparency means showing the full picture, not cherry-picking favorable signals.

Brand Trust

Brand trust is the level of confidence and reliability that consumers place in a brand, built through consistent positive experiences, transparent communication, and perceived alignment of values. It is one of the most durable competitive advantages a business can build, directly influencing purchase intent, loyalty, and willingness to recommend.

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