How Can We Reduce Information Asymmetries and Enhance Trust in ‘The Market for Lemons’?

Zavolokina, L., Schlegel, M., & Schwabe, G.

The used car market is characterized by information asymmetries and mistrust. Blockchain technology promises to resolve these problems using a system which stores data over the life cycle of a vehicle. However, while blockchain technology is strong in preserving the stored information, sense-making of this information is still essential to bring value to end consumers of the system. In this paper, we take an exploratory approach and create a prototype, which is then evaluated in realistic car sale conversations between buyers and sellers. We demonstrate and discuss how the interplay of different design elements of an application, built on top of a blockchain-based platform, helps to reduce information asymmetries and enhance trust. Our findings suggest that though providing more information about a used product (a car) leads to fewer information asymmetries in general, a reputation mechanism and data analysis are both beneficial in improving the situation further. As for trust, such a system enhances trust between buyers and sellers and, in general, makes the overall purchase process more trustworthy. However, to achieve these positive effects, the quality of the stored information should be guaranteed and properly communicated to the end-user.