An Example of Ways Poorly Constructed Markets Can Fail

Michael Giberson

From the Mim’s Bits column in the MIT Technology Review: “How Mechanical Turk is Broken
Why the world’s most famous outsourcing hub for tiny tasks is littered with spam and shoddy workmanship

Mechanical Turk (MTurk) is Amazon’s site for linking companies seeking small web-based tasks requiring at least a bit of human intelligence to anonymous piece-rate web workers. Panos Ipeirotis, a computer scientist at NYU’s Stern School of Business, both uses MTurk to do research and does research on the MTurk marketplace.  He’s concluded that MTurk’s market design suffers from a “market for lemons” problem: lack of a reputation system for sellers (i.e. workers) means buyers (i.e. employers) can’t tell if they are getting high quality or low quality effort. If prices in the market reflect the average effort, it will be too low to retain high quality sellers. As high quality sellers leave, the average quality will fall and the price with it.

The Mim’s Bits column concludes, “Without transparency and accountability — the core ingredients of what economists call signaling — the site will continue to function primarily as an object lesson in the ways that poorly constructed markets fail.”

There is more to MTurk than this, including ways buyers can try to detect effort quality in order to improve seller effort. For more insight check out A Computer Scientist in a Business School where Ipeirotis blogs his MTurk research. Ipeirotis has related papers on his university website.

RELATED: Harvard researchers John Horton, David Rand, and Richard Zeckhauser write about using MTurk to conduct online social science research. Horton has related papers on his university website. Here is Horton’s list of economics-relevant stories from The Onion.

Many more academic papers on MTurk, via the Social Science Research Network.

2 thoughts on “An Example of Ways Poorly Constructed Markets Can Fail

  1. Despited the efforts of the central planning mindset to group everything into some form of a collective, markets do not fail. Individuals in a market setting fail. The so-called “market” is not capable of purposeful action. Only individuals have and use knowledge.

    Read Human Action.


  2. I agree: markets don’t have objectives and therefore can’t fail to achieve them.

    A more complete headline would have been: “An example of ways poorly constructed markets can fail to serve the interests of market participants” or “An example of ways poorly constructed markets turn out not to help individuals capture potential gains from trade.”

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