vendredi, août 31, 2007

Turning lemons into acid rain

Yeah I know, could have written it in french. But heck, did not akerlof wrote in english "The market for Lemons" see also here and here.

So heck, let's go for a bit of free thinking and a call to the virtual community.
We ve all heard now about the problem of information aymetry between traders and the effect of such an asymetry on trades (it basically bars them, WIlliamson would add it suggests other mechanisms for the allocation of goods).
We all know what kind of mechanisms can be institutionally designed to help reduce the asymetry and its effects : like officialy approved measuring tools, noting agencies and the like.

What we are just really discovering now, in pain, tears, possibly blod and hopefully sweat ... is how lemons have been turned in the finance industry into acid rain.

Read here and you get some hints on how technically it has been done, other posts on the blog are just as great.
ANd here we begin to face an exciting era and concept.
Heck what could then it be : ACID RAIN for markets ?

We ve read
"The Market for Lemons: Quality Uncertainty and the Market Mechanism"

How about a paper that would be called :
acid showers on traders : nip tuck and the financial industry.

Or anything related.

The idea behind is in order to develop the trade and production of lemons, the poorest way is to create pools of pools of lemon slices and trade those pools, indeed cutting lemons into slices generates a pervasive acid that builds up into the sky of the market, until it rains on traders barring future production and destroying all investment.

THe economic problem is no more asymetry of information between individual parties, but the rising risk for the collective body of huge disasters.

What we need is a way of measuring risk at the collective level and witness how the reduction of uncertainty at the individual level can be at the expense of the rise of the risk at the collective level.

I'll spend more time on this idea that just occured to me. ANy comments welcome.

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