A Peach or a Lemon?
Praveeni Jayasekera
ACMA, CGMA, BSc. Economics and Management, PG IT, Dip. Social Sciences
During a rather long winded, twisted and thought provoking conversation I had with a friend on the topic of relationships, I stumbled upon a rather interesting approach people take to relationships and could not help but be reminded of the lessons I followed on Information Economics when in university.
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Anyone who has followed Microeconomics probably remembers the reference to the sale of a used car when learning about perfect and asymmetric information. This example describes how the seller of the car has knowledge of whether the car is in fact a peach or a lemon, whereas, the purchaser, is exposed to the risk and uncertainty of making a purchase with imperfect information. In economic terms, the market average would be too high a price to pay for a lemon whereas, the seller would be at a disadvantage if he were to sell the peach at the market rate. This almost seems like a deadlock, however, driven by risk appetite, rational evaluation and decision making, these transactions do take place everyday, every where in the world, in spite of the risk and uncertainty posed by the asymmetric nature of information.
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Having refreshed our minds about these basic premises of information economics, let’s move to the application of information economics to relationships. Just before I ran out of battery during this long call with my friend, he was telling me about his old relationships and it became evident that he had never asked a girl out or declared his feelings, but had instead, gone with the flow and eased into situations.
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My systematic and process driven head was thrown into a flux. I floundered on my words and was aghast. ‘How would she know what you feel like and how would she know how serious you are, if you never said it out loud?’, though with less coherence, I asked him something to this effect.
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Now it was his turn to sound dumbfounded. He asked me whether such a thing is necessary and whether it is not obvious.
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To me, this is a case of neither party to the relationship disclosing complete information. Unlike in the famous example of the sale of a car, where one person does have complete information, in this situation, neither the girl nor the guy has complete information.
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Going back to economics, due to asymmetric information, different types of sub optimal outcomes such as adverse selection and moral hazard (I will not complicate this by trying to explain either of these) arise and market failure is triggered.
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If one side lacking the required information leads to suboptimality and failure of some sort, it is unlikely that in a social interaction with both parties lacking the required information that anything optimal can be achieved. So, from a socioeconomic sense, we have in hand a recipe for relationship disaster is my point.
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I leave the audience to ponder over the question of how much should be disclosed and how much should be left unsaid between two people in a relationship. Thoughts, anyone?
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