A Market for Lemons

In 1970, George Arthur Akerlof, an American economist and University Professor at the McCourt School of Public Policy at Georgetown University, wrote a paper, intriguingly titled The Market for Lemons: Quality Uncertainty and the Market Mechanism. In 2001, it won him a Nobel Prize. The hypothesis behind it was simple. If a seller knows more about a product than a buyer, such information asymmetry will decrease market efficiency and the quality of goods (or services), creating a market dominated by dishonesty and greed and infiltrated with gullible buyers and crooked sellers. The consequence of information asymmetry is the driving out of the good by the bad, leaving a market filled with devious sellers – the sharks – looking to profit unfairly from desperate buyers – the suckers – hoping to score a bargain. Competitive, zero-sum, winner-takes-all markets are havens for lemons, particularly when the incentives are of a financial nature. As champion backgammon player, George Sulimirski, told Joseph Mazur for his book What's Luck Got to Do with It? The History, Mathematics, and Psychology of the Gambler's Illusion, “where there’s money there’s cheating.”

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