When Life Gives You AI, Will You Turn It Into A Market for Lemons? Understanding How Information Asymmetries About AI System Capabilities Affect Market Outcomes and Adoption

Erlei and colleagues apply Akerlof's classic 'market for lemons' framework to AI system adoption, addressing a critical gap in understanding why organizations struggle to evaluate AI capabilities. The information asymmetry problem — where AI vendors know more about system limitations than buyers — creates adverse selection dynamics that explain both AI hype cycles and adoption failures. For product directors, this provides a theoretical foundation for understanding why AI procurement often disappoints and why signaling credible capability becomes so important. The work bridges classic information economics with contemporary technology adoption, offering both diagnostic tools and strategic insight into how markets actually evaluate complex technical capabilities.