Lemons problem

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Lemons problem

Named after 2001 Nobel Laureate George Akerlof's 1970 paper "The Market for Lemons". His original example had to do with used cars. Why does the seller want to get rid of the car? It might be a lemon. The buyer and seller have asymmetric information. Hence, the buyer will demand a deep discount on the car because of the possibility it is a lemon.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Lemons Problem

The problem of asymmetric information in investing. In most investments, the buyer takes a risk that the seller is trying to sell because he/she knows that the investment is a lemon, that is, a nearly guaranteed loss. To compensate for the lemons problem, many buyers offer prices lower than they otherwise would in a perfectly symmetrical market.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
References in periodicals archive ?
On 9 Nov 2011 we issued our report RUSSIAN BANKS: The Lemon Problem where, among other things, we argued that capitalisation is an important concern for equity investors in these turbulent days.
Behavioral economists refer to this credibility gap as the "lemon problem." To understand it, picture yourself shopping for a used car.
As the lemon problem suggests, if customers doubt the bank's intentions, they won't trust its facts either.
It is the lemon problem: you can taste it, savor it, recall it, but really have no words for it.
Hence, the real lemon here is the theory of "lemon problems" based on asymmetric information.