Abstract
The division of goods into types or characteristics has a long history in economics, but it has achieved new importance in the last 50 years. This paper presents a novel pedagogical differentiation of goods into search, experience and credence categories, in part by adding a new goods designation. We argue that there is an important class of meta-credence goods for which there is no possible means of verification in any standard Popperian sense, meaning that the probability of fraud is greatly increased. Despite this fact, markets and prices exist. Assurances of some kind, whether self-generated or provided by experts, substitute for evidence. We propose using examples, some drawn from neoclassical economist Carl Menger, that such a characterization is useful in analyzing such markets.
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Notes
Crain and Goff (1988) contributed to the debate and argued that televising the legislature makes legislative services more like experience goods and less like search goods.
Former director of the Metropolitan Museum of Art, the late Thomas Hoving’s view that 30 to 40% of art in American museums were fake is a strong counterpoint to the idea that verification happens rapidly (Hoving 1996, p.17).
As a recent analysis of the Da Vinci affair correctly pointed out (Lewis 2019, p. 312): “Short of a miracle, the Salvator Mundi will thus find itself floating forever in a Sisphean limbo, where efforts to climb the summit of art history and authenticate it permanently as a Leonardo are eventually, ultimately doomed to fail.”
Not only does the Salvator Mundi not have unanimity behind it, world authorities on the artist have openly disputed the matter (Lewis 2019). The 500-year anniversary of Leonardo’s birth will be celebrated widely including an exhibition at the Louvre in Paris. The new Leonardo may be included. However, the fate of the painting may be determined by whether the work is presented as a workshop painting or one with small input by the master or whether it is given genuine autograph status by the Louvre (significantly by Da Vinci’s hand). That decision will possibly affect whether the painting is lent or not. It will certainly affect its value. Not surprisingly, moreover, Christie’s auction house relied on favorable experts to market the picture.
Associations of psychics do in fact exist in the U.S. The Association of Independent Readers and Rootworkers (AIRR) (2019, p. 1) will identify accredited members to help you find “honest, spiritual guidance, successful counseling, and professional magical spell casting and ritual conjuration.” Each member “has completed a year-long program of training in conjure, hoodoo, i.e. voodoo, witchcraft, rootwork, making mojo hands, and casting powerful magick spells”. Rootwork is related to hoodoo which is an ancient African form of conjuring, and the practice of magic practiced in the Southern United States.
Modern microeconomics does not distinguish between real goods and services and imaginary things. In the spirit of Gary Becker, for example, there is a market for marriage. Likewise, one might view a market for exorcism, or banishing the devil from those possessed, just as there is a market for assurances of eternal salvation.
Menger appears to have supplied his own value judgments in some of these cases in favor of dominant modern religions and against ancient ones, but both types offer promises of an afterlife.
Menger’s consideration of imaginary goods and the whole issue of meta-credence underlines the importance of psychology in certain demands. If one self-generates a belief in the efficacy of a charm or the prediction of a fortune teller, what third-party evaluation could exist to prove the individual incorrect? Menger may not believe that cosmetics or vitamins have effective results, but those who do believe, without proof, exhibit a positive demand for such products. Hence a market for meta-credence goods is generated.
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Acknowledgements
We are grateful to John D. Jackson, Kathy White, Richard Higgins and the late Robert Tollison for comments on the central idea of this paper. Comments of the reviewer and editor were also helpful. Naturally we assume complete responsibility for our work.
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Ekelund, R.B., Thornton, M. Extreme Credence and Imaginary Goods. Atl Econ J 47, 361–371 (2019). https://doi.org/10.1007/s11293-019-09634-5
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DOI: https://doi.org/10.1007/s11293-019-09634-5