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caveat emptor overview

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Presentation on theme: "caveat emptor overview"— Presentation transcript:

1 caveat emptor overview
two roles: buyer or seller. everyone matched in buyer-seller pairs. sellers have a value for their car and buyers have a different value for that car. buyers do not find out their actual value of the car until after the car is purchased but they can form an estimate of car quality. sellers post a take-it-or-leave-it asking price. buyers decide whether to accept or decline that price.  lemon market 9A Playground for Decisions 9

2 seller’s screen car quality range for the whole market 9 lemon market
9A Playground for Decisions 9

3 seller’s screen seller’s value of the car 9 lemon market
9A Playground for Decisions 9

4 seller’s screen Enter a take-it-or-leave-it asking price. Set price. 9
lemon market 9A Playground for Decisions 9

5 buyer’s screen car quality range for the market 9 lemon market
9A Playground for Decisions 9

6 buyer’s screen seller’s asking price 9 lemon market www.moblab.com
9A Playground for Decisions 9

7 buyer’s screen choose whether to buy the car or pass 9 lemon market
9A Playground for Decisions 9

8 payoffs buyer seller payoff = buyer value – price paid
payoff = price received – seller value lemon market 9A Playground for Decisions

9 payoffs: an example example = transaction price = $3,800
value to buyer = $4,500 seller value= $3,000 buyer value – price = payoff $1.32 $1.08 $0.24 seller cost $0.74 $0.34 lemon market 9A Playground for Decisions

10 payoffs: an example example = transaction price = $3,800
value to buyer = $4,500 seller value= $3,000 buyer value – price = payoff $4,500 $3,800 $700 seller cost $1.08 $0.74 $0.34 lemon market 9A Playground for Decisions

11 happy playing! payoffs: an example example =
transaction price = $3,800 value to buyer = $4,500 seller value= $3,000 buyer value – price = payoff $4,500 $3,800 $700 seller $3,000 $800 lemon market 9A Playground for Decisions

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