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Not just a direct incentive for fraud, “speculative exaggeration,” and “being economical with the truth,” but an indirect one too. If you have a fairly reasonab

by a4isms 4y ago

Not just a direct incentive for fraud, “speculative exaggeration,” and “being economical with the truth,” but an indirect one too. If you have a fairly reasonable business and want to go SPAC, you are competing for investor dollars with all the corrupt shills. You either stretch credulity yourself to raise money, or you won’t raise funds. It’s a market for lemons. https://en.wikipedia.org/wiki/The_Market_for_Lemons https://en.wikipedia.org/wiki/The_Market_for_Lemons

paganel 4y ago
> https://en.wikipedia.org/wiki/The_Market_for_Lemons https://en.wikipedia.org/wiki/The_Market_for_Lemons Looking at the "Critical reception" section on that wiki page, meaning this part: > while the reviewers for Journal of Political Economy rejected it as incorrect, arguing that, if this paper were correct, then no goods could be traded. I can't see how that basic observation is not taken into account anymore. More exactly, 50 years from when that study was published we still have a well functioning used car market in pretty much the majority of the world countries, which would contradict the main point made by said study. Is there anything else that escapes me? Why did people in the economics profession fall for this study? Was it because of the maths?
- morelisp 4y ago
  > Is there anything else that escapes me? “The market can stay irrational longer than you can put off buying a car.”
- a4isms 4y ago
  The paper speaks to markets where there is strong information asymmetry, not all markets, and it doesn’t follow that no good can be traded, it simply says that in such a market, people will hold goods they feel have actual value and trade those that don’t. Even in such a market for lemons, that doesn’t mean no lemons will be traded, it means that buyers price everything like a lemon, and we still have a functioning market. I don’t know about the whole world, but up here in Canada the used car market is exactly like this. Nobody trusts that guy with a small lot who operates out of a portable, so they won’t pay good money for anything he sells. So he has no incentive to sell good cars. I bought a used car… From a dealer, and I have a factory warranty on it. That’s a market where there is less information asymmetry: I know the dealer was required to bring the car up to a certain level of service for it to qualify for the factory warranty, and I know that if it breaks down, I can get it serviced. Cars that don’t meet this standard are sold by dealers too, but you can’t get a factory warranty, and they are priced accordingly. They might be good, but if a car meets the standard for a factory warranty, what dealer would offer it without that warranty, just to deal with customers who are skeptical of its reliability? A market for lemons is still a market, and it finds an equilibrium where the lemon-ness gets priced into transactions. People certainly can and do trade lemons.
  - paganel 4y ago
    > A market for lemons is still a market, and it finds an equilibrium where the lemon-ness gets priced into transactions. Yes, I agree, and I think that's related to the accusation of "triviality" made by some of the reviewers. If the "lemon-ness" is already priced in, then where's the thing that would make this theory special? > I don’t know about the whole world, but up here in Canada I'm from Eastern Europe where the second-hard market is relatively more important compared to Western countries for objective reasons, but as far as I can tell there are lots of people purchasing SH cars in North America from the likes of Craigslist and FB Market (more recently) without any mention of warranties and the like. Those markets are highly functional.
inamberclad 4y ago
Wouldn't an investor want a company to be undervalued at IPO? Buy in early and low, and wait for the market to realize the true value.
- a4isms 4y ago
  I was speaking to the pressure on businesses to inflate their promises, which drives real businesses out of the market, leaving only unicorn dreams and pixie dust prospectuses. If you are raising funds, you are telling investors you have value, and that the IPO price is early and low. But if it’s a market for investments, then everybody else with a SPAC is saying the same thing, and if they’re selling pixie dust and unicorn dreams, they are promising even greater returns than you are if you’re trying to run a “real business.” You either get in on the reality distortion field, or get washed out.

by a4isms 4y ago

paganel 4y ago

> https://en.wikipedia.org/wiki/The_Market_for_Lemons https://en.wikipedia.org/wiki/The_Market_for_Lemons Looking at the "Critical reception" section on that wiki page, meaning this part: > while the reviewers for Journal of Political Economy rejected it as incorrect, arguing that, if this paper were correct, then no goods could be traded. I can't see how that basic observation is not taken into account anymore. More exactly, 50 years from when that study was published we still have a well functioning used car market in pretty much the majority of the world countries, which would contradict the main point made by said study. Is there anything else that escapes me? Why did people in the economics profession fall for this study? Was it because of the maths?

morelisp 4y ago
> Is there anything else that escapes me? “The market can stay irrational longer than you can put off buying a car.”
a4isms 4y ago
The paper speaks to markets where there is strong information asymmetry, not all markets, and it doesn’t follow that no good can be traded, it simply says that in such a market, people will hold goods they feel have actual value and trade those that don’t. Even in such a market for lemons, that doesn’t mean no lemons will be traded, it means that buyers price everything like a lemon, and we still have a functioning market. I don’t know about the whole world, but up here in Canada the used car market is exactly like this. Nobody trusts that guy with a small lot who operates out of a portable, so they won’t pay good money for anything he sells. So he has no incentive to sell good cars. I bought a used car… From a dealer, and I have a factory warranty on it. That’s a market where there is less information asymmetry: I know the dealer was required to bring the car up to a certain level of service for it to qualify for the factory warranty, and I know that if it breaks down, I can get it serviced. Cars that don’t meet this standard are sold by dealers too, but you can’t get a factory warranty, and they are priced accordingly. They might be good, but if a car meets the standard for a factory warranty, what dealer would offer it without that warranty, just to deal with customers who are skeptical of its reliability? A market for lemons is still a market, and it finds an equilibrium where the lemon-ness gets priced into transactions. People certainly can and do trade lemons.
- paganel 4y ago
  > A market for lemons is still a market, and it finds an equilibrium where the lemon-ness gets priced into transactions. Yes, I agree, and I think that's related to the accusation of "triviality" made by some of the reviewers. If the "lemon-ness" is already priced in, then where's the thing that would make this theory special? > I don’t know about the whole world, but up here in Canada I'm from Eastern Europe where the second-hard market is relatively more important compared to Western countries for objective reasons, but as far as I can tell there are lots of people purchasing SH cars in North America from the likes of Craigslist and FB Market (more recently) without any mention of warranties and the like. Those markets are highly functional.

inamberclad 4y ago

Wouldn't an investor want a company to be undervalued at IPO? Buy in early and low, and wait for the market to realize the true value.

a4isms 4y ago
I was speaking to the pressure on businesses to inflate their promises, which drives real businesses out of the market, leaving only unicorn dreams and pixie dust prospectuses. If you are raising funds, you are telling investors you have value, and that the IPO price is early and low. But if it’s a market for investments, then everybody else with a SPAC is saying the same thing, and if they’re selling pixie dust and unicorn dreams, they are promising even greater returns than you are if you’re trying to run a “real business.” You either get in on the reality distortion field, or get washed out.