Good Used Cars, Cheap Health Insurance, and Successful Consulting Engagements

Abstract

Why is it impossible to find a decent used car?

The economic theory of "asymmetric information" shows us what happens to a market in which one party holds important information about the quality of the goods or services. Health insurance is another market where the parties each hold significant information. We will examine what happens in these markets as a result of that asymmetric information.

Another market plagued by asymmetric information: software consulting services. We've all seen enormously costly disasters created by low quality services. Yet, there seems to be virtually no way to gauge a service providers true abilities. Asymmetric information and the optionality of transactions explains used car sales. It also explains why consulting contracts for expensive projects are virtually doomed to fail, and why the projects' failures don’t stick to the providers.

So, how can a buyer get past the "sales spin?"

How can a provider differentiate?

This talk brings ideas together from economics, game theory, and software development to discuss the common problem that all consultants eventually face: the impossibility of differentiation under asymmetric information.