a lemon market will be produced if
- buyer can not accurately assess the value of a product but the seller is more able
- seller cannot make any justified claims
this implies
- seller knows that buyer is pessimistic about product but still tries to sell
- buyer knows that seller is not confident but still tries to sell
- buyer now has more reasons to believe that the product is bad
result
- seller will not try to sell in the first place
here is an example of a social lemon market
Alice and Carol are walking on the sidewalk in a large city, and end up together for a while.
“Hi, I’m Alice! What’s your name?”
Carol thinks:
If Alice is trying to meet people this way, that means she doesn’t have a much better option for meeting people, which reduces my estimate of the value of knowing Alice. That makes me skeptical of this whole interaction, which reduces the value of approaching me like this, and Alice should know this, which further reduces my estimate of Alice’s other social options, which makes me even less interested in meeting Alice like this.
Carol might not think all of that consciously, but that’s how human social reasoning tends to work.
In most cases, Alice understands this and doesn’t even try to talk with Carol in the first place.
references
https://en.wikipedia.org/wiki/The_Market_for_Lemons
https://www.lesswrong.com/posts/wfAF4v8kikxJoNqfL/social-lemon-markets