Communication · Economics · Honesty · Influence · Life · Lying · Messages · Persuasion · Salesman · Selling · Society · The Game · The Players · Thoughts · Trust · Truth

The Market for Lemons

If you were to ask the average person questions such as: Are you a good parent? Is your intelligence above average? Do you have a good sense of humor?  The answer would be overwhelmingly in the affirmative. Similarly, if we asked them: Are you honest? Do you have integrity? Are you authentic with those around you? You would be hard pressed to find someone who answered in the negative.

Yet if you were to ask the same people whether they believe the majority of those they knew shared those same qualities, they would likely say no! How do we explain this anomaly? One answer might be that against all odds, we selected an incredibly honest sampling of the population. However, if we are not completely satisfied with this somewhat implausible explanation, what might be another possible explanation for this paradox?

The classical economic paper by George Akerlof, whimsically entitled “The Market for Lemons”, describes what takes place in economic markets where there is no reliable way to determine the veracity of the representations being made about the product sold.  The case used to illustrate the point was the market for used cars.

In the market for used cars it is very difficult to ascertain what’s under the hood, since it relates to a number of considerations, such as the treatment by the previous owner(s), regularity of maintenance, driving style, incidence of accidents, etc. Of course the prospective purchaser is privy to none of this information and is not likely to place much reliance on the claims of the salesman. Therefore, in the absence of other information, the buyer should not pay more than an average amount for the used car. This means that the better than average car owner, as well as a further number of sellers who perceive their cars to be above average, has no incentive to place their car on this market. By inference, those cars available for purchase are going to be those whose owners perceive to be of inferior quality- in other words, lemons!

A similar phenomenon applies to integrity and the social arena. Let us take the example of the networking cocktail party. Similar to the used car market there is no reliable way to objectively verify the veracity of statements made by the participants regarding what they know, and who they know. Under the circumstances the intelligent player must take everything that is said with a grain of salt. Also, similar to the used car market, the smart player is inclined to believe that the above average individual would not be likely to subject themselves to such an environment freely. Most likely they are there because they have exhausted all other possibilities

The result is that the honest individual cannot help but feel themselves a bit of a loser for even being there. Meanwhile, the poser is less effected; because this is the social environment which best suits their skills at impression management. Over time, the honest players frustrated by the environment, experiencing little gain and much pain, removes themselves from the playing field. This means that the concentration of posers increases over time. It is precisely in this way that the Game marginalizes the honest player and rewards the manipulator. This then begs the question: What happens when the honest players are completely eradicated, leaving only the ‘sophisticated’ players in place? I believe we are all about to find out!!!

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