22
May/12

"Making Choices in the Age of Information"


NY Times: Making Choices in the Age of Information:

According to classical theories, signaling thrives when consumers don’t have access to reliable information. But signaling actually works far better in an information-rich society than in a poor one. Port-au-Prince, Haiti, for example, is filled with numerous beautiful commuter buses that are painted with all sorts of bright, bold images — of naked women, Catholic saints, voodoo symbols, soccer players, musicians. Maintaining these paint jobs is enormously expensive. The buses need to be taken out of commission for at least a couple of weeks, and the painters demand hundreds of dollars, often more than a year’s wages in Haiti.

Yet bus owners feel the need to get a fresh paint job once or twice each year because few people will pay to ride an unpainted bus. The extravagant decorations suggest that an owner cares about his business — that he spends money maintaining his engines, tires and brakes (no small matter in a country with steep mountains and lousy roads). My hunch, however, is that many owners, short of cash, are likely to invest in a visible new paint job over invisible brake maintenance. With no external authority — government inspectors or consumer-watchdogs or online consumer forums — there’s no way to know if the signal is accurate.

One Response to “"Making Choices in the Age of Information"”

  1. Lisa Omori says:

    Interesting … thinking of my own experience traveling in foreign locations, it is difficult to know which vendors are reputable.  Presumably I would choose the pretty bus, presuming that the new paint must mean success.  Hopefully market forces would be at work and quality vendors will succeed.