George A. Akerlof ‘s speech at the Nobel Banquet, December 10, 2001
My colleagues and I would like to express our deepest gratitude for the prize bestowed upon us for our work on asymmetric information.
Asymmetric information occurs where buyers and sellers have different information.
It has been present since the dawn of trade.
In this century we are careful in buying a used car.
In past centuries it would have been a horse.
Here are some of the tricks of the horse trader.
Bring a sad old nag to market.
Put a live eel down her throat.
She will be frisky.
Bring a high strung stallion to the ring.
Give him a bucket of beer.
He will be mellow.
These are the tricks.
On one side of the market are the tricksters.
The other side avoids the tricksters.
In the extreme, markets totally collapse.
And the good may lose out as well as the bad.
And so, it is difficult for the individual elderly to buy medical insurance, because those willing to pay high premia are presumed to be sick.
And so, it is difficult for young people to attain credit to pursue their ideas, because the true will be mixed with the false.
This is the stuff that markets are made of:
How to sort the good from the bad.
In exploring such problems economists have gained an understanding of what is needed to make markets work.
We understand a pivotal piece of the puzzle why some countries are poor while others are rich.
And we can work for the cure of the poverty that causes hunger, disease, and lives spent more in misery than in self-fulfillment for much of the globe.
At the time of our original papers, the exploration of asymmetric information was the next item on the agenda of the economics profession.
It is the achievement of a community of scholars each learning from one another, and then passing it on.
We accept the prizes you have given us in that spirit.
Little by little, step by step, women and men of ideas across the centuries and across the continents have wrested from nature a greater understanding of ourselves and also of God’s creation.
Let that endeavor continue.