"Fixing The Losers Game"... Design Thinking Applied To the World of Finance

"The Market for 'Lemons" and Investment Management Services: George Akerlof was awarded the 2001 Nobel Prize in Economics for a profound idea captured in his 1970 article "The Market for 'Lemons": Quality Uncertainty and the Market Mechanism", in which he showed that the classic "value-for-money" outcome attached to market competition requires informational symmetry between buyers and sellers. If sellers know more about what they are selling than buyers know about what they are buying, the sellers will be able to extract too high a price from the buyers for too little value. Although Akerlof chose the used-car "lemons" market to make his point, he could just as well have chosen the market for investment management services, - it would be hard to conceive of a market with greater informational asymmetry between buyers and sellers. If asymmetrical information is the underlying problem in the market for investment management services, then simply removing the informational asymmetry must be the solution. Can we create a demand side in that market that understands the realities of financial markets, security pricing, and the economics and motivations of security issuers as well as the supply side does? This question is essentially about institutional design. So, more specifically, can we create knowledgeable investment institutions with both the requisite knowledge of finance and economics and a legal requirement to use that knowledge solely in the best financial interests of their clients? Put more succinctly, can we create knowledgeable investment institutions with clear fiduciary responsibilities to their stakeholders/beneficiaries?"

Hat Tip ~ Keith Ambachtsheer, Director at The Rotman International Centre for Pension Management (ICPM).