As soon as the Nobel Prize in Economics of 2001 for George Akerlof (Berkeley), Michael Spence (Stanford), and Joseph Stiglitz (Columbia) was announced, I got a flurry of emails from students and friends. The reason they were congratulating me is that these were among the five or six names I had for the last several years been predicting and hoping would get the prize. And I must admit feeling mighty chuffed by the announcement. The work of Akerlof, Spence, and Stiglitz is among the most creative research that my profession has seen. Their papers involve a blend of logic and social observation which is very rare and hard.

The paper that gets the first mention in the Nobel citation is, rightly, George Akerlof's classic, ‘The Market for Lemons: Quality Uncertainty and the Market Mechanism’. Much of this paper was written during the year 1967–8 that Akerlof spent at the Indian Statistical Institute in New Delhi; and it suffered the fate common to a lot of truly original research—it was initially rejected by leading journals as being sub-par. It was eventually published in the Quarterly Journal of Economics in 1970.

The ‘lemons’ in the title refer to second-hand cars or duds that usedcar sellers often try to pass off as if they were of superior quality. This paper, written mainly in the form of examples, illustrates a point of immense importance. Much conventional economics used to be done under the assumption that buyers and sellers are fully informed and rational.