Why data transparency is good for ‘rejected’ customers.

January 8, 2012












If you’ve ever read our blog or navigated our site, you’ve likely seen the phrase, ‘removing information asymmetries’.  If you’ve sat through a meeting with us, you’ve been lectured on how data transparency can benefit the consumer.  Let me try to connect the dots.

 Asymmetric information refers to a situation in which one party in a transaction has more or superior information compared to another. Economist George Akerloff publicized the problems of asymmetric information in his 1970’s paper discussing the ‘market for lemons’ in the used car industry. He explained that because a buyer cannot generally ascertain the value of a vehicle accurately, he/she would be willing to pay only an average price for it. Knowing in advance that the ‘good sellers’ are going to reject this average price, the buyer removes the aforementioned ‘lemon seller’s advantage’ by adjusting downward the price they are willing to pay.  In the end, the average price isn’t even offered, only the ‘lemon’ price is.  Effectively, the ‘bad’ drive the ‘good’ out of the market.


A similar situation occurs in the credit markets.  Let us examine a case in which a lender is faced with uncertainty about the creditworthiness of a group of borrowers. Having to account for the bad risks, lenders are pushed to charge artificially high interest rates to cross subsidize their risk. Recognizing this and not willing to borrow at usurious rates, the good subset of creditworthy borrowers remove themselves from the credit markets.  Similar to above, the ‘bad’ have driven out the ‘good.’

This inefficient risk cross subsidization affects a large portion of the $many trillion financial services markets, and removing it will yield huge value in the coming years. The availability of information is paramount to realizing this value.  Fortunately, data today is being created at an unprecedented rate. 

At Demyst.Data, we are constructing the infrastructure and mechanisms to aggregate & analyze this data.  Our clients are working to engage the consumer to share their information and educating them on the benefits of transparency.  Together, we are removing the asymmetries necessary to draw the ‘goods’ back to the market and to help lenders make educated lending decisions.  We believe we’re engaged in a win/win game; hence, our passion, excitement, and enthusiasm about the potential value of improved information.