Evidence of Adverse Selection from Thoroughbred Wagering

Are lemons really hot potatoes?

“…It is assumed that U a 0, U t 0, and 0 U e 1, U ee < 0, and U is nonnegative and bounded. 6 The …rst two assumptions follow if automobile maintenance costs increase with age (see Engers, Hartmann, and Stern, 2004) and automobile bene…ts decrease with age (see Engers, Hartmann, and Stern, 2007). The assumption that 0 U e 1 is innocuous, simply de…ning units of e and specifying e as a "good."…”

“…In the special case in which C depends only on the change in e, namely e t+1 e t , this amounts to assuming that marginal costs do not decrease as the change 5 We assume there are no other characteristics of the car observable in the market but not by us. 6 Although all variables except e are discrete, for brevity, we state monotonicity assumptions in terms of derivatives. 7 We can generalize and allow for required maintenance costs as well with no change in the qualitative results.…”

More Information, More Ripoffs: Experiments with Public and Private Information in Markets with Asymmetric Information

“…They attribute this result to the ability of buyers to recognize a signal of quality difference from the seller. Chezum and Wimmer (2000) show that homebred horses are favored more often than similar non-homebred horses. Dewan and Hsu (2004) find that sales from online stamp auctions are lower than those from a well-established dealer and that reputation of the online seller has a small positive impact on sales price and probability of sale.…”