Posted by: bluesyemre | March 29, 2022

Information “Lemons” #KentAnderson

Uncertainty cripples markets, while quality builds them

The techno-utopians of the information revolution assumed that knowledge would spontaneously emerge from unmediated interactions across a sprawling peer-to-peer network, with predictably disappointing results. Without the places where professionals like experts and editors and peer reviewers organize conversations and compare propositions and assess competence and provide accountability — everywhere from scientific journals to Wikipedia pages — there is no marketplace of ideas; there are only cults warring and splintering and individuals running around making noise.
— Jonathan Rauch, “The Constitution of Knowledge: A Defense of the Truth”

This passage is applicable to so many aspects of supposedly modern — which may be remembered someday as primitive — publishing practices, and a paper from 1970 pairs nicely with Rauch’s observations.

It’s a paper about lemons.

It was written by George A. Akerlof, a professor at the McCourt School of Public Policy at Georgetown University and Koshland Professor of Economics Emeritus at the University of California, Berkeley. It examines “markets in which buyers use some market statistic to judge the quality of prospective purchases.” Akerlof was awarded the Nobel Memorial Prize for his work. (He’s the husband of current Secretary of the Treasury Janet Yellen, for a more relevant reference.)

You may recognize his hypothesis more quickly if we refer to it as “asymmetric information” in a market.

The “lemons” Akerlof considered were of the automotive variety, using the car market as “a finger exercise” to illustrate and explore his assertion, which is that in a market where bad used cars co-exist with good used cars, the bad will drive out the good as they devalue the good cars to such an extent that good cars can’t sell for a fair price.

Without good information about whether a used car is high-quality or safe, the price difference between new and used becomes steep immediately, almost the moment a car becomes “used.” We can all remember when “driving it off the lot” would mean losing 30-50% of the car’s value. The reason for this was mainly a way for dealers to protect themselves from the risk of being exploited by “lemons” — someone purchasing a new car that was faulty couldn’t trade it immediately and at a high price for a new car, strapping the dealer with a lemon while walking away with a better new car. The risk shifted to the consumer, while also increasing pressure on carmakers to sell high-quality new cars.

The used car market has changed in many ways since 1970. It now skews toward quality with cars retaining their value far longer and far better. The pressure to create high-quality new cars means that cars are far superior now compared to their equivalents a few decades ago. They are engineered, manufactured, and maintained more rigorously, and are exceptionally reliable from the moment they roll off the assembly line. In addition, cars are now traceable by their vehicle identification numbers (VINs), which were standardized in the US in 1981, giving each car a unique “barcode.” Finally, the asymmetry of information has fallen a good deal thanks to Consumer Reports, CARFAX, and other intermediaries that document both general and specific issues with used cars.

Now, a used car can sell reliably for a decent price, making it easier to buy and sell a used car privately. Businesses specializing in collecting, marketing, and selling used cars are thriving (CarMax, Vroom, Carvana) for people who are willing to pay extra for lower risk transactions. There are even used car vending machines portrayed in ads.

Unfortunately, while quality was becoming commonplace with automobiles, this has not been the case with information. We now live in an information space filled with our version of “lemons” — versions of papers that inject uncertainty into the market about the reliability of information overall, reducing trust among consumers that what they encounter will be predictably reliable and valuable.

Is the journal predatory? Is the preprint faulty? Is the social media post biased? Is the person arguing with me on Twitter even real, or just a bot?

The inability to trust products puts an entire market at risk, as Rauch determined. When we can’t tell a “lemon” from a quality paper — or when there are so many “lemons” in the market that the quality papers struggle to be seen — the market is meaningless.

Our propensity to tolerate information “lemons” has led to initiatives to make lemonade out of them — from MIT Press’ Rapid Reviews: Covid-19 to the more recent “Preprint Highlights” feature being rolled out by Molecular Biology of the Cell. These are attempts to make up for the lax standards publishing has embraced in order to peddle “lemons” on to the market — a practice that erodes trust and weakens the market overall.

Some may argue scholarly and scientific publishing isn’t and shouldn’t be a market, because capitalism and money are objectionable for information goods based on scientific and scholarly claims. Such arguments are about price, not markets as markets. “Free” is a price that depends on your place in any viable market, but is never an actual fact — everything costs somebody something. More profoundly, markets aren’t just financial, but interpersonal and societal. The routine exchange of anything creates a market. After that, you are just debating how, and how well, the market works, and who pays.

Measures of quality information are hard to come by, which is why brands matter so much, a fact that remains elusive to some. It’s also why the impact factor — often mistaken for a measure of quality — is useful. It measures something scientists care about once quality standards are established: centrality. The idea of quality may be constructed out of certain components — durability, relevance, and community acceptance. But it is not the topic of the impact factor. Centrality is. Newer measures like Altmetric don’t address quality or centrality, but rather popularity or immediate interest. Issues like durability or community acceptance aren’t addressed by usage data or attention metrics, which is probably why these other measurements remain decorative baubles instead of core elements.

When it comes to the future of a healthy information market for scholarship and science, the biggest question that hits me in the face every day — and one we need to continue to ask — is how the stewards of a marketplace of ideas allowed a once-reliable market of dependable products built on strong trust with the public and scientists to be undermined by “lemons” instead of geared to increase in quality, reliability, and confidence in its use.

As with automobile manufacturers and their regulators, will it take us 30-50 years to undo the damage wrought by an era of shoddy standards, lax regulations, and cultivated cronyism?

Peddling information “lemons” may kill the market. It has already led to a concentration of power among a few major players, another thing Akerlof illustrated.

Akerlof’s “lemon” law is turning out to be worringly predictive . . .

So, once again, with feeling:

Without the places where professionals like experts and editors and peer reviewers organize conversations and compare propositions and assess competence and provide accountability — everywhere from scientific journals to Wikipedia pages — there is no marketplace of ideas; there are only cults warring and splintering and individuals running around making noise.
— Jonathan Rauch, “The Constitution of Knowledge: A Defense of the Truth”

https://www.the-geyser.com/information-lemons/


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