OTHER PEOPLE KNOW MORE ABOUT THEMSELVES THAN YOU DO. Kids, the third item on Professor Sargent’s list did not receive much attention when I was studying economics some fifty years ago. It seems obvious: “3. Other people have more information about their abilities, their efforts, and their preferences than you do.” The economic significance of this insight was not appreciated. The subject came up occasionally. The testing of products by Consumers Union to inform consumers of their characteristics was mentioned once. Advertising was usually considered as a way of fooling consumers rather than informing them. Guarantees and warranties were not taken into account. I remember reading that Milton Friedman had observed that department stores were in the business of providing warranties for what they sold, but it was left as an observation. (the argument is that if you are a repeat customer at a department store for a number of products, you can expect the store to stand behind an individual product).
As this wikipedia article describes, when Professor George Akerlof published his pathbreaking paper on “The Market for Lemons” in 1970, it was on his fourth attempt. Two journals had rejected the paper because of “triviality” and a third had thought it was incorrect. Akerlof, Michael Spence, and Joseph Stiglitz jointly received the Nobel Prize in Economics in 2001 for their research related to what was now a field of study known asymmetric information.