Communications of the ACM
Cyber Warranties: Market Fix or Marketing Trick?
Credit: Shutterstock / Andrij Borys Associates
When buying a second-hand car you are at the mercy of the dealer. The dealer knows which cars were treated well by past owners and which are likely to break down within a few months. When buying an information security product, the vendor has a better idea of how effective the product truly is. In both cases, the seller has information the buyer lacks.
Key Insights
Economists refer to this phenomenon as a market with asymmetric information. Akerlof1 suggested this leads to a "market for lemons" dominated by lower quality goods (aka lemons in the case of used cars). Consumers cannot differentiate between lemons and quality used cars. Akerlof's model suggests only lemons would be sold in such a market.
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