George Akerlof

George Akerlof received his PhD from MIT. His 1970 paper 'The Market for Lemons: Quality Uncertainty and the Market Mechanism,' published in the Quarterly Journal of Economics after being rejected by several journals, became one of the most cited economics papers of the 20th century. The paper introduces the concept of information asymmetry in markets using the used car market as an illustration: sellers know the quality of used cars ('lemons' vs. good cars), but buyers cannot distinguish them. This information asymmetry drives buyers to offer only average prices, which drives the owners of good-quality cars out of the market, leading to adverse selection where only lemons remain. This mechanism explains why markets for many goods — including credit, insurance, and labour — may fail or function poorly when one party has more information than the other. The paper won Akerlof the 2001 Nobel Prize (shared with Michael Spence and Joseph Stiglitz). The concept of adverse selection has become a cornerstone of financial economics, applied to everything from insurance markets to credit default swaps. Akerlof is married to Janet Yellen and collaborated with her on research about efficiency wages and labour market dynamics.