Information Asymmetry: How Cheaters Drag Down the Entire Market Part 1

If we are to assume that the dating world is a marketplace, then we must examine the good, the bad, and the ugly in such markets.

In the perfect world, a free market is supposed to operate efficiently (Market Efficiency). That means everything is in perfect karmic balance: everybody has the same amount of information, the right information, at the same time, and they trade in the market based on what they know. Because of that, prices in the market would always fully reflect all available information out there.

It’s like living in a small town where everybody knows your name, your dog’s name, and your dog’s vet’s name.

Say a new toothpaste arrives in town charging $5. A few brave townsfolk try it and report it tastes like batteries. Everybody knows about it right away and refuses to pay more than $1 for it. Then $1 becomes the toothpaste’s new price, because everybody now knows that it tastes disgusting.

The next day a newcomer sets up a bakery shop in town and asks $10 for a loaf of bread. Seems kinda pricy, but a few people decide to give it a try. Turns out the bread tastes so good, one bite and you’re ensured a good mood for the rest of the day. The word spreads and soon there’s a line up for the $10 loaf because everybody knows that it is worth it.

In that perfect world, no one is going to overpay or underpay for anything, because everybody knows everything there is to know about the product. Quantity goods charge a high price, and crappy products charge a low price (or even find themselves driven out of the market). Price reflects the true value of the product, and the market is said to efficient.

(continued in my next post...)