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Making the Most of a Lemon

July 21, 2011

I don’t think even George Akerlof saw this one coming.

A man in Massachusetts was arrested after he wreaked havoc on several cars at a dealership. His wife had bought a car from the very same dealership, and after his mechanic deemed it to be “a lemon,” the man tried to return to the car to no avail.

So rather than wallowing in his own sorrow, he decided to make lemonade from the lemon his wife recently purchased by causing damage on several cars with the very same car his wife bought; of course, he would only damage vehicles valued at $20,000 or higher.

David Cross’s story reminds me of an economic concept called information asymmetry, where one party in a transaction has more knowledge than the other. This concept was used by Mr. Akerlof in a paper he wrote, unsurprisingly using the car market as an analogy, that won him a Nobel Prize.

The dealership did not disclose to Mr. Cross that it was selling him a lemon, and of course, there was no way he could have known. It wasn’t until he took it to his mechanic that he found out about its deficiencies. When he was shown the door instead of a refund, Mr. Cross decided to exact his own revenge.

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