Monday, July 30, 2012

Rant: The Solution To Ignorance

Why do some consumers rely on the pronouncements of the Seafood Watch to determine which fish is sustainable? Why do some people rely on wine scores to determine which wines to purchase? Why do some consumers seek out certified organic products? The answer to all three questions is often the same, information asymmetry.

First, let us travel back into the past, a little over 40 years ago. In 1970, George Akerlof, an American economist, published an article, The Market for Lemons: Quality Uncertainty and the Market Mechanism, in the Quarterly Journal of Economics. For this article, Akerlof would win the 2001 Nobel Prize in Economics. In brief, the article discussed the problems that result in markets due to information asymmetry. Though he concentrated his article on used car buying, the principles are applicable in many different fields, from wine buying to seafood purchasing.

Information asymmetry essentially refers to transactions where one party, usually the seller, possesses more significant information about the product than the potential buyer. This leads to an imbalance of power which can cause numerous problems in the market. For example, if a buyer wants sustainable seafood, the seller generally knows much more about the source of the fish than the buyer. The seller could potentially lie to the buyer and the buyer might be unable to easily ascertain the truth. That places the buyer at the mercy of the seller. When a person enters a wine store, and is confronted with hundreds of wines, how does he know which wines will be good? Can he rely upon the word of a wine store employee as to which wines he should buy? Maybe, maybe not.

One potential solution to the problem of information asymmetry is the use of certifications, warranties, guarantees, etc. Essentially, some third party, ostensibly impartial, helps balance out the inequalities in the knowledge level of the products. That third party does the necessary research that the consumer would be hard pressed to do on their own. This can prevent the consumer from being ripped off by the seller because the buyer will now possess better information to make a properly informed decision. It levels the playing field, and creates greater confidence in consumers.

The average person gets overwhelmed at a wine store, not sure what to buy. So, he may rely on a wine score from a critic to help make his decision. To that buyer, a high wine score, from a critic he trusts, is a certification of the quality of that wine. The consumer who relies on the review of a wine blogger is doing the same thing. Now, that same consumer could ask the staff of the wine store for a recommendation, but they also realize there is a potential conflict there. The store is in the business of selling wine, and could try to pawn off a poor selling, low quality wine on an unsuspecting consumer.

In fairness, there is the potential of conflict for wine critics too, though it is often less obvious, and thus overlooked by the average consumer. With wine store staff, the consumer must first develop a level of trust, so that they are comfortable with their recommendations and do not worry about any conflict of interest. But that takes time, though ultimately could be more fulfilling and attentive to the desires of the consumer.

Seafood sustainability is a complex issue and consumers often get overwhelmed with information, often conflicting. They cannot do all of the necessary research on their own, so they must rely on third parties to help them cut through all of the research, as well as help them determine which seafood purveyors they can trust. So, organizations like the Seafood Watch try to make it much easier for consumers in this regard. They provide consumers easy guides, like their wallet guides, to help when trying to purchase sustainable fish.

Again though, sometimes consumers develop a certain level of trust with a purveyor, such as a chef, and are willing to accept their recommendations rather than follow the third party certifications. Locally, I have seen several chefs serving seafood that might be considered an Avoid on the Seafood Watch, yet that seafood may very well be sustainable. The Seafood Watch list is far from perfect, and they do acknowledge some of the shortcomings. But you must learn to trust those chefs, to ensure they are doing the right thing.

Those of us who review food and drink help our readers deal with the problems of information asymmetry. We provide them an impartial (hopefully) review which will allow them to make better informed choices as a consumer. But, consumers must learn to trust our opinions, and if we fail to earn that trust, then we have failed as reviewers. Restaurants, wine stores, and other similar establishments need to realize the issue of information asymmetry, and that to combat it, they need to build trust up with their customers. Trust is the key to battling ignorance.

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