The beauty of this system, which Akerlof undoubtedly appreciates, is that sellers have a financial interest in sharing the information with buyers. Disclosure gives buyers the confidence to bid higher. So although a Carfax report costs $39.99, dealers will generally supply it at no charge. “It helps dealers and consumers trade fairly with each other,” said Patrick Olsen, the executive editor in charge of vehicle research content for Carfax.
I spoke with Adam Thierer of George Mason University’s Mercatus Center, a co-author of a 2015 paper, “How the Internet, the Sharing Economy, and Reputational Feedback Mechanisms Solve the ‘Lemons Problem.’” It’s personal for him: He used Carfax and other information tools to buy six used sports cars in succession, including a rare model of the BMW Series 8, over a decade starting in the late 1990s. “We moved from a world of information poverty to one of information abundance now,” he said. “And that is a remarkable change in my lifetime.”
Buying a used car — an expensive, highly engineered product with wear and tear — is more complex than most people realize, said Pat Ryan, the founder and chief executive of CoPilot, a Chicago-based company that locates used cars that match shoppers’ criteria. Information technology, he said, is solving that problem: “It’s like having the teacher’s answer key when we were in grade school.”
“Buy now, pay later,” the hottest trend in retail, can be either a convenient option for shoppers or a trap. “People are often overly optimistic regarding their plans and ability to pay down debt and they assume they will save more and spend less in the future and yet that often does not happen,” says an analysis by BEworks, a management consulting company specializing in behavioral economics. Such people can incur costly late charges.
On Dec. 16 the Consumer Financial Protection Bureau issued orders for information to five companies in the space: Affirm, Afterpay, Klarna, PayPal and Zip. I asked the companies for their reaction. Affirm said it doesn’t charge late fees. Afterpay and Klarna said they “pause” accounts from future purchases if a payment is late. PayPal said it ended late fees globally Oct. 1. Zip said it “will continue to prioritize regulatory compliance.”