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George Akerlof, Milton Friedman, and Moroccan Lemons

The American Economic Association annual meetings are going on right now. Once a year about 10,000 economists all descend on a city (never Las Vegas because not enough economists gamble), give seminars to one another, and interview the newest crop of Ph.D. students to determine who will get jobs where.

The events at these meetings are not generally very newsworthy. This year, though the New York Times has an article about George Akerlof’s presidential address to be given today. Akerlof, the article says, will encourage economists to build more reality into economics. By reality, Akerlof means quirkiness in the way that people make decisions, in contrast to the “rational man” type of assumption that, say, Milton Friedman would have embraced. Indeed, the article paints Akerlof and Friedman as reflecting opposite poles. This isn’t quite right, though. Both Akerlof and Friedman want to explain real world phenomena and their work aims squarely at doing so. Many economists, in contrast, care little about real-world questions. In this important regard, I see Akerlof and Friedman as being on the same team rather than opposing teams.

More amusing than the article itself is the advertising links that accompany it. When you do a search on Akerlof’s name in the New York Times database, along with the search results, you get a list of related ads that are generated by Google to entice the people who are searching for stories on Akerlof’s to buy some associated products. The uninitiated might be puzzled why searching for an economist would get you links to buying lemons from Morocco. The answer: one of George Akerlof’s important economic contributions was a paper on information asymmetry entitled “The Market for Lemons.” (This paper wasn’t about the lemons you eat, of course, but rather about low quality used cars that people describe as lemons.)