Watch hidden quality unravel a market.
Akerlof's lemons model explains how asymmetric information can drive high-quality goods out of a market.
Inside this model
There are 100 sellers with qualities 1 through 100 and reservation prices equal to quality. Buyers value each at m×quality but see only the available pool. Round zero offers m times the initial mean quality. Each next round retains sellers whose quality is no greater than the previous price, then updates the offer to m times their mean. With no sellers, price is zero.
Out in the world
A practical use
Inspection, warranties or trustworthy certification can help a used-goods market distinguish quality instead of pricing everything from an average.
A useful lens. Not a universal law.
- This discrete iterative teaching model is not Akerlof's exact original model. Sellers do not re-enter and buyers have identical values. There are no warranties or strategic signals.
Associated thinkers
Further reading
Explore the original research or the teaching reference behind this experiment.
George Akerlof — Writing The Market for Lemons ↗