Tuesday, January 5, 2010

GI Joe and the Market for Lemons

GI Joe is possibly the worst movie ever (see the number of goofs and plot holes here). But I still spent 2 hours watching it, even though there were plenty of better things to do with my time. Am I simply a fool?

The answer is, well, maybe. The reason I sat all the way through is that I thought the movie might redeem itself by having a nice twist at the end, or even a few cheesy lines that I could laugh at. But no.

Considering the number of terrible films made this type of situation is relatively rare. It is easy to get a number of honest reviews to narrow down the quality before watching a film.

In any case, it got me thinking that movie markets are similar to lemon markets because the quality of the good cannot be known in advance. In a true lemon market the quality cannot generally even be known after the good is consumed.

Classic examples of this type of market are for medical services, automotive repairs and second hand goods. Someone with no medical knowledge can see a doctor and be prescribed a treatment, and have no way of knowing whether the prescribed treatment was the most effective of all possible treatments.

For the mechanically inept, that clunking noise can be fixed for a mere $500, but there is no (cheap) way of knowing if it could have been fixed for less once it has been fixed.

For second hand goods, cars in particular, the lemon market makes more intuitive sense. Because the quality of the car cannot be known, people generally assume that a second hand care is of average quality, and pay the price reflective of an average condition car. It is very difficult for those people who fanatically maintain their cars to demonstrate to a prospective buyer that it is far superior to another similar one.

What is more interesting about lemon markets (and the reason I am writing about GI Joe in the first place) is that they were proposed by an insightful commenter here as another reason why your boss often appears incompetent. (Please read the linked article entirely– very interesting)

I tend to agree. In many jobs, especially managerial roles, it is very difficult to evaluate the level of competence of the manager, as opposed to the group as a whole. Also, because the skill set required for each job up the corporate ladder changes, high performance at a lower level job does not imply a solid performance at a higher level.

In our interactive workplace, even the apparent success of one person may be reflected on a whole team, thus encouraging the promotion of others.

The solution to lemons markets is not regulation, but information. New employers do their best but still face the constraints previously mentioned. For second hand car sellers, third party inspections can be worth the money (pay for the buyers own choice of third party check).

Any other markets stand out as potential lemons?


  1. That article on the incompetence of management was great. I will refrain from sending it to my boss though.

    To my mind, the emoployment market is probably the biggest lemon market that most of us come in contact with each day. As a potential employee, you can never really know whether the an employer will come through with their promises of a flexible workplace focusing on team work and work/life balance. As a potential employer, you can never really know whether the employee can actually do all the things he/she says he/she can.

    For my current position I was lucky enough to know a number of people who had worked here in the past. None of them gave it a glowing report, but I appreciated that thier honesty had reduced the uncertainty I faced. It enabled me to make a better informed decision.

  2. Good points. I agree that employers often 'talk up' the roles a fair bit - something I've also experienced.

    Maybe employers should offer potential employees some one-on-one time with people in the company doing similar roles. It would clear up a fair bit of misrepresentation from both sides I would think.

  3. Only post Gen Y would expect employers to work to earn their employees. How times change.

  4. Anonymous.
    I'm not sure what you mean by employers working to earn their employees. Care to clarify?

    The point is that both sides of the labour exchange (the buyer and seller of labour) do not have good information prior to entering into a contract. I merely proposed that the quality of the good (from both sides) can be better ascertained with some discussions between existing employees and candidates for their role.

    There have always been costs for businesses finding employees (advertising, interviewing, probationary periods, recruiting agents etc) - there's nothing new about it, or intergenerational about it, as far as I can see.

  5. Of course employers have to work to earn their employees. Otherwise they get stuck with the bottom of the barrel.

    Historically, this has been in the form of pay. But Gen Y is not solely driven by money. They/we are willing to trade some income for lifestyle benefits. As discussed in other of Mr Murray's blog entries, many of us are willing to forgo income for quality of life.

    What I find amusing is that older generations appear to resent Gen Ys for their pursuit of happiness over cash. I can think of nothing better to pursue than happiness.

    What is it that you are pursuing Anonymous?