How Many “Lemons” Do You Have In Your Portfolio ?
image credit to Forbes.com The Market for Lemons From Wikipedia , Akerlof's paper uses the market for used cars as an example of the problem of quality uncertainty. It concludes that owners of high-quality used cars will not place their cars on the used car market. A car buyer should only be able to buy low-quality used cars and will pay accordingly. The market for good used cars does not exist. " The Market for Lemons: Quality Uncertainty and the Market Mechanism " is a well-known [1] 1970 paper by economist George Akerlof which examines how the quality of goods traded in a market can degrade in the presence of information asymmetry between buyers and sellers, leaving only "lemons" behind. In American slang, a lemon is a car that is found to be defective only after it has been bought.
