Tuesday, September 23, 2008

Smash Certainty, Become Famous

One of the most important economic articles of the past forty years is George Akerlof's discussion of the used-car market in the article The Market for 'Lemons': Quality Uncertainty and the Market Mechanism (.pdf), as mentioned previously.

The fact that this article is the seminal article in the New Institutional Economics genre blows my mind. Maybe it's because the ideas are now already so absorbed into the culture that its conclusions seem painstakingly simple. The article has been cited 4,605 times according to Google Scholar.

Because after all, Akerlof did not establish any iron laws or reach any definitive conclusions about used-car versus new-car markets. Rather, from the very beginning of the article, he showed that economists had left out a key element of consumer decision making in past theorizing - the difficulty of verifying product quality.

But it hadn't taken extraordinary insight on Akerlof's part to understand that the problem of verifying product quality existed - shit, I mean, any ordinary consumer had to deal with lemons all the time. Akerlof also did nothing to make the problem of ensuring product quality any simpler or easier for consumers to resolve in the future. No fancy maths, no complicated calculus. I think he even tried to make the variables look more exciting than they would otherwise be.

The article's contribution to economics was that it pointed out product-quality issues and the consequences for neoclassical theologians who never considered such a simple fucking problem as part of the picture. Akerlof made the argument that his economist peers should talk about this more, because including it would lead to a more accurate and realistic portrayal of capitalism in the classroom.

After it was given some thought for a while, and in light of subsequent writings by other economists, his point was accepted and he went on to become a famous economist who won the Nobel Prize in economics in 2001.

What I want to say is this. The lemon article is typical of the way economics advances. After something fairly obvious gets by unnoticed for a time, a friendly dissenter takes aim and recasts the old paradoxes (Zeno's, Gresham's, etc.) in new terms. Publishers then jibe around thinking about whether it is "interesting" or not, and then if it is, lots of subsequent academics think about the world as seen in the development of the new economic idea, and include this in their citations. If you make a strong effort to communicate the breadth of your conclusions and the advantages of your research program, you will be immortalized through citation. That is the critical element in achieving professional interest and recognition.

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