How Smart Glasses Could Solve the Asymmetric Information Dilemma

by Clifford Gross 2,589 views0

Whether it’s buying a used car, television, or a cup of coffee, one of the most timeless problems faced by consumers is – “How do I know what I’m getting for what I paid for?”

More specifically, this issue is what’s referred to by academics and economists as Asymmetric Information. The basic issue as it relates to any transaction of goods, is that there’s an imperfect balance of information. The seller of a used car, for example, knows a lot more about the history of the vehicle than the buyer – putting the buyer at a disadvantage in most cases.

On the flip side, the asymmetric information dilemma can also work against sellers. Consumers assume that high-priced items are a rip-off because sellers are keeping key information from them, and shy away from buying because they don’t think they’ll receive fair value.

And while technology has taken a stab at solving the asymmetric information problem – think of websites like Carfax or Zillow – there’s on emerging technology that has the potential to be a real game-changer for both buyers and sellers: Augmented Reality (AR).

The Lemons Problem

It’s been over 40 years since the famous “Lemons Problem” was first introduced by Cal Berkeley economist George Akerlof in his seminal 1970 research paper entitled The Market for Lemons. The most accurate and well-known illustration of the asymmetric information dilemma, Akerlof studied the used car market, and in particular the market for defective used cars that we’ve all come to know as “Lemons.” In the Lemon’s Problem, Akerlof observes that it’s virtually impossible for the buyer of a used car to ascertain the true value of the car, as they require information that only the seller has possession of (i.e., accident history, prior maintenance), and whether or not the car is indeed a “Lemon.”

He then observed that in this scenario of asymmetric information, buyers were willing to pay no more than an average price, as close as possible to bargain basement but well below premium. So, while the buyer’s disadvantage is that he or she risks overpaying for a Lemon, the seller is also caught at a disadvantage if their car isn’t a Lemon or is indeed a premium product. In the asymmetric world of the Lemon market, buyers simply don’t want to pay a premium because they don’t want to risk it, leaving sellers with vehicles in good condition often shortchanged. Akerlof’s Lemon Problem is as relevant today as ever, with both consumers and sellers grappling with the need for greater transparency to solve for asymmetric information.

The Need for Solutions

Asymmetric Information creates inefficient markets and economies, and in many cases such as the Lemon Problem, prevents two parties from undertaking a mutually beneficial value exchange. However, that’s not to say that economists, academics, and thought leaders haven’t sought out practical ways to overcome the asymmetrical information dilemma over the years. One of the major solutions is something we’ve all become familiar with in today’s world, and that the warranty. By offering warranties, sellers are able to reassure buyers that they won’t receive a “Lemon” in terms of performance, therefore enabling them to charge higher prices for products that are actually good. Buyers then receive some peace of mind that they’re receiving fair value for the extra price they’re paying.

Secondarily, a tactic known as “Signaling” has been tried to help overcome the problem of asymmetric information. This entails that the seller (in most cases) offers critical signals to the buyer that his product is, indeed, worth the asking price. This might include things like an AAA rating, Michelin Star, or some other stamp of approval signaling to the buyer that the vendor is reputable. If the seller has enough of the right kind of signals, the buyer’s mind is put at ease about making the transaction, even though the asymmetric information imbalance still exists. So, while warranties and signaling are two tactics that have been used with varying levels of success to overcome asymmetric information, they don’t actually serve to remedy the core problem of information imbalance.

The Promise of Smart Glasses

In the modern, digitally connected world, more data is generated, stored, analyzed, and accessed than ever before. This is also becoming true for physical products and items, as the Internet of Things (IoT), smart homes, and connected automobiles become more of the norm. Today, when someone is trying to buy a used car or even look at a home purchase, they have access to more historical (and in some cases predictive) data than ever. This is where augmented reality (AR) smart glasses show promise in terms of stepping in to solve for the asymmetric information dilemma.

In the future, someone who looks at a car through AR-enabled smart glasses will be presented with a plethora of data about the vehicle, displayed in real-time and easy to digest format on their smart lenses. Take a look at the motor, and the smart glasses might be able to access Carfax or a historical maintenance database to help the buyer determine whether or not it’s in good shape and if will potentially need maintenance in the near future. AR smart glasses could even solve for asymmetric information when it comes to services as well. Walk into a local tax preparer wondering if they’re good or not, and AR smart glasses might display a history of reviews, license and accreditation history, and whether or not they’ve had any adverse interactions with the IRS.

Despite the implementation of potential solutions like warranties and signaling, asymmetric information is an issue today as it was in 1970 when the Lemon Problem was first formulated. The good news is that technology – AR smart glasses in particular – show vast promise in getting both sides the information they need to exchange value quickly, transparently, and seamlessly in a mutually beneficial manner.

About Lucyd

Lucyd’s mission is to enhance the visual experience. They’re doing this by developing ergonomic smart glasses, and a blockchain-based app store to support them. Their platform will make it easy for anyone to create, share and experience AR content. From gaming, to sports, to navigation, to professional tasks, Lucyd Lens will put the apps and content you need right in front of you, so you never have to look down again.

Clifford Gross

International tech transfer expert. Cliff is passionate about bringing university developed technologies to market. CEO of Tekcapital (LON: TEK) and Lucyd.

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