Great Performance !

The day that a car is driven off the lot is the worst day in its life, for it instantly loses as much as a quarter of its value. This might seem absurd, but we know it to be true. A new car that was bought for $20,000 cannot be resold for more than perhaps $15,000. Why? Because the only person who might logically want to resell a brand-new car is someone who found the car to be a lemon. So even if the car isn’t a lemon, a potential buyer assumes that it is. He assumes that the seller has some information about the car that he, the buyer, does not have—and the seller is punished for this assumed information.

And if the car is a lemon? The seller would do well to wait a year to sell it. By then, the suspicion of lemonness will have faded; by then, some people will be selling their perfectly good year-old cars, and the lemon can blend in with them, likely selling for more than it is truly worth.

It is common for one party to a transaction to have better information than another party. In the parlance of economists, such a case is known as an information asymmetry. We accept as a verity of capitalism that someone (usually an expert) knows more than someone else (usually a consumer). But information asymmetries everywhere have in fact been mortally wounded by the Internet.

Information is the currency of the Internet. As a medium, the Internet is brilliantly efficient at shifting information from the hands of those who have it into the hands of those who do not. Often, as in the case of term life insurance prices, the information existed but in a woefully scattered way. (In such instances, the Internet acts like a gigantic horseshoe magnet waved over an endless sea of haystacks, plucking the needle out of each one.) Just as Stetson Kennedy accomplished what no journalist, do-gooder, or prosecutor could, the Internet has accomplished what no consumer advocate could: it has vastly shrunk the gap between the experts and the public.

The Internet has proven particularly fruitful for situations in which a face-to-face encounter with an expert might actually exacerbate the problem of asymmetrical information—situations in which an expert uses his informational advantage to make us feel stupid or rushed or cheap or ignoble. Consider a scenario in which your loved one has just died and now the funeral director—who knows that you know next to nothing about his business and are under emotional duress to boot—steers you to the $7,000 mahogany casket. Or consider the automobile dealership: the salesman does his best to obscure the car’s base price under a mountain of add-ons and incentives. Later, however, in the cool-headed calm of your home, you can use the Internet to find out exactly how much the dealer paid the manufacturer for that car. Or you might just log on to www .TributeDirect.com and buy that mahogany casket yourself for just $3,200, delivered overnight. Unless you decide to spend $2,995 for “The Last Hole” (a casket with golf scenes) or “Memories of the

The Internet has proven particularly fruitful for situations in which a face-to-face encounter with an expert might actually exacerbate the problem of asymmetrical information—situations in which an expert uses his informational advantage to make us feel stupid or rushed or cheap or ignoble. Consider a scenario in which your loved one has just died and now the funeral director—who knows that you know next to nothing about his business and are under emotional duress to boot—steers you to the $7,000 mahogany casket. Or consider the automobile dealership: the salesman does his best to obscure the car’s base price under a mountain of add-ons and incentives. Later, however, in the cool-headed calm of your home, you can use the Internet to find out exactly how much the dealer paid the manufacturer for that car. Or you might just log on to www .TributeDirect.com and buy that mahogany casket yourself for just $3,200, delivered overnight. Unless you decide to spend $2,995 for “The Last Hole” (a casket with golf scenes) or “Memories of the Hunt” (featuring big-racked bucks and other prey) or one of the much cheaper models that the funeral director somehow failed even to mention.

Taken From : FREAKONOMICS - A Rogue Economist Explores the Hidden Side of Everything