“The Market for Lemons: Quality Uncertainty and the Market Mechanism” is a 1970 paper by the economist George Akerlof. It discusses information asymmetry, which occurs when the seller knows more about a product than the buyer. Akerlof, Michael Spence, and Joseph Stiglitz jointly received the Nobel Memorial Prize in Economic Sciences in 2001 for their research related to asymmetric information. Akerlof’s paper uses the market for used cars as an example of the problem of quality uncertainty. There are good used cars and defective used cars (“lemons”), but because of asymmetric information about the car (the seller knows much more about the problems of the car than the buyer), the buyer of a car does not know beforehand whether it is a good car or a lemon. So the buyer’s best guess for a given car is that the car is of average quality; accordingly, he/she will be willing to pay for it only the price of a car of known average quality. This means that the owner of a good used car will be unable to get a high enough price to make selling that car worthwhile. Therefore, owners of good cars will not place their cars on the used car market. This is sometimes summarized as “the bad driving out the good” in the market….
Both the American Economic Review and The Review of Economic Studies rejected the paper for “triviality”, while the reviewers for Journal of Political Economy rejected it as incorrect, arguing that if this paper was correct, then no goods could be traded. Only on the 4th attempt did the paper get published in Quarterly Journal of Economics. Today, the paper is one of the most-cited papers in modern economic theory (more than 5,800 citations in academic papers as of July 2009).
“Truthiness” – a term used “to describe things that a person claims to know intuitively or “from the gut” without regard to evidence, logic, intellectual examination, or facts.”
Wikipedia has a remarkably detailed entry on this.
“On balance, one must weigh up the pros and cons, look at the data, and then use intuition where there is missing data. It is difficult to move very far in leadership without having intuition, without being able to go by gut feeling. At some point the data is not there; that is when you will need to make a decision that is difficult.”
Terry Corby, Senior Executive, Accenture