Illustrating Adverse Selection with Laffy Taffys and Movie Pass

Support ongoing human narrations of LessWrong's curated posts:
www.patreon.com/LWCurated

This is a linkpost for https://bayesshammai.substack.com/p/conditional-on-getting-to-trade-your

“I refuse to join any club that would have me as a member” -Marx[1]

Adverse Selection is the phenomenon in which information asymmetries in non-cooperative environments make trading dangerous. It has traditionally been understood to describe financial markets in which buyers and sellers systematically differ, such as a market for used cars in which sellers have the information advantage, where resulting feedback loops can lead to market collapses. 

In this post, I make the case that adverse selection effects appear in many everyday contexts beyond specialized markets or strictly financial exchanges. I argue that modeling many of our decisions as taking place in competitive environments analogous to financial markets will help us notice instances of adverse selection that we otherwise wouldn’t.

The strong version of my central thesis is that conditional on getting to trade[2], your trade wasn’t all that great. Any time you make a trade, you should be asking yourself “what do others know that I don’t?”

Source:
https://www.lesswrong.com/posts/vyAZyYh3qsqcJwwPn/toward-a-broader-conception-of-adverse-selection

Narrated for LessWrong by Perrin Walker.

Share feedback on this narration.