George A. Akerlof is a New Keynesian economist, writer, and Professor Emeritus at the University of California, Berkeley. With A. Michael Spence and Joseph E. Stiglitz, he earned the 2001 Nobel Prize in economics for their analyses of information asymmetry.
Akerlof is the author of Animal Spirits: How Human Psychology Drives the Economy, and Why It Matters for Global Capitalism, and Identity Economics: How Our Identities Shape Our Work, Wages, and Well-Being.
- George Akerlof is a New Keynesian economist and Professor Emeritus at UC Berkeley.
- He is renowned for his 1970 paper, The Market for Lemons, Quality Uncertainty and the Market Mechanism.
- Akerlof received the Nobel Prize in economics for his theory of markets under asymmetric information.
- He is married to the former chair of the Federal Reserve, Janet Yellen.
Early Life and Education
George A. Akerlof was born on June 17, 1940, in New Haven, CT. He earned a bachelor's degree from Yale University and a Ph.D. at the Massachusetts Institute of Technology in 1966. He joined the faculty at the University of California, Berkeley, as an economics professor, where he remains today.
The Market for Lemons
George A. Akerlof introduced his theory of markets under asymmetric information in his paper, The Market for Lemons, Quality Uncertainty and the Market Mechanism, published in 1970.
Asymmetric information exists when one party in an economic transaction has more information than the other. The Market for Lemons cites the example of a used car purchase where the seller has more information than the buyer in a market of both high-quality cars and "lemons."
Akerlof claims that when a buyer is unable to distinguish between the high-quality car and the "lemon," the buyer becomes unwilling to pay the actual value of the better vehicle offered for sale. Due to limited information, the buyer assumes that the better car is also of lower quality and the buyer will in turn offer a lower price for even a high-quality car.
This causes all of the car prices to fall, and creates a market of only lower-priced "lemons." This perversely forces sellers of new or high-quality cars to prove their product's reliability, often through policies like warranties.
George A. Akerlof shared the 2001 Nobel Prize in economics with A. Michael Spence and Joseph E. Stiglitz for their analyses of markets with asymmetric information.
Akerlof is specifically credited with his contribution to the study of markets where sellers of products have more information than buyers about product quality and showed that low-quality products may squeeze out high-quality products in such markets and that prices of high-quality products may suffer as a result.
What Is Identity Economics?
In his 2011 book, Identity Economics, George A. Akerlof captures the idea that people make economic choices based on both monetary incentives and their identity and that people avoid actions that conflict with their concept of self.
What Is the Fair Wage-Effort Hypothesis?
In 1990, George A. Akerlof and his wife, Janet Yellen, former chair of the Federal Reserve, developed the theory, “the fair wage-effort hypothesis.” Yellen and Akerlof argue that "workers proportionally withdraw effort as their actual wage falls short of their fair wage.” Such behavior causes unemployment and is also consistent with observed cross-section wage differentials and unemployment patterns.
What Is Reproductive Technology Shock?
In 1996, Akerlof described a phenomenon that he labeled "reproductive technology shock." He argued that the new technologies that had helped to spawn the late twentieth-century sexual revolution, such as modern contraception and legal abortion, had not only failed to suppress the incidence of out-of-wedlock childbearing, but also had worked to increase it.
The Bottom Line
A renowned economist and educator, George A. Akerlof is known for his study of asymmetric information in markets. Awarded the 2001 Nobel Prize, he is Professor Emeritus at the University of California, Berkeley.