Information Asymmetry: The Lemons Problem

You wake early on a Saturday in October 1987, the air already carrying the first chill of a Tokyo autumn. You have been saving for eight months. A colleague tipped you off about a private seller in Setagaya Ward listing a 1984 Toyota Corolla for ¥480,000, roughly 40 percent below the going market rate for a car of that age and mileage. You take the Odakyu Line out to meet him.

The car is parked on a quiet residential street. It is cleaner than you expected: the silver paint catches the morning light without a visible scratch, the interior smells faintly of the pine air freshener hanging from the mirror, and the odometer reads 61,000 kilometers. The seller, a man in his mid-forties named Tanaka, shakes your hand firmly and speaks with easy confidence. He explains that he is relocating to Osaka for work and simply needs the car gone before the end of the month.

The price is low. Tanaka seems honest. The car looks good.

But you have no mechanic with you. You have no service records beyond a single sheet Tanaka produces, handwritten, listing two oil changes and a tire rotation. You cannot see the transmission. You cannot hear what the engine sounds like under load on a highway. You do not know whether the car spent three years being driven gently to a train station and back, or whether it was pushed hard through mountain passes and repaired cheaply after a collision that never made it onto any document.

Tanaka is asking for a decision today. He has, he says, another interested buyer coming this afternoon.

You have two options. You pay ¥480,000 and take the car, accepting that you may have found a genuine bargain or may have purchased a machine that will cost you ¥200,000 in repairs within six months. Or you walk away, protect your savings, and lose what might be the best deal you will see all year.

What do you do?