Could you buy a used car online, sight unseen and without a test-drive? How about a plane? A vehicle changes hands on eBay Motors every 60 seconds, including one private business jet that sold for $4.9 million. Every second buyers collectively swap more than $1,839 for products through eBay, sending money to complete strangers with no guarantee that the goods they buy will in fact arrive, let alone in the condition they expect.

As a rule, they are not disappointed. To some economists, this is a borderline miracle, because it contradicts the concept of Homo economicus (economic man) as a rational, selfish person who single-mindedly strives for maximum profit. According to this notion, sellers should pocket buyers’ payments and send nothing in return. For their part, buyers should not trust sellers—and the market should collapse.

This article was originally published with the title Is Greed Good?.

4 Comments

1. 1. brcimage 09:47 AM 3/11/08

   I am introducing a new theory called " Theory of Sustainable Greed".
   In simple terms, we can explain the cyclical market movements, economic recessions can be explained away by applying this theory.
   Nature or Market Forces, allow greed upto certain levels which can be sustained by the ethos and culture of the people of that country. It also provides you an additional cushion of 5 to 10% upto which the stabilisied greed level can be sustained. This can be called the sustainable greed level. Any further push upward leads to market/cyclical fall .
   Any takers for this theory and can anyone guide me to develop this theory further.
   B. Ravichandran

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2. 2. A. West 02:48 PM 8/6/08

   Instead of developing new theories, I think "selfishness" needs to be redefined. How is it in one's self-interest to lie, cheat, or steal? To deliberately fake reality will almost necessarily lead to disaster (psychologically, if not materially). Acting in one's self-interest means acting in accordance with reality from a long-term perspective. Sacrificing that for short-term gain is never in one's interest.

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3. 3. brian0918 07:59 PM 8/10/08

   "A rational, selfish person who single-mindedly strives for maximum profit. According to this notion, sellers should pocket buyers payments and send nothing in return. For their part, buyers should not trust sellersand the market should collapse."
   
   Your 2nd and 3rd sentences contradict your first. A person acting according to rational self-interest does not act as if there are no consequences to his actions. If someone tries to rip someone else off, he essentially becomes that person's slave - his future depends entirely on that person's willingness to enact revenge, seek the help of the government, etc.
   
   You fail.

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4. 4. the mannnn in reply to A. West 05:02 PM 11/30/08

   It's called the curse of the commons. The problem lies with trust. If I don't "trust" my neighbors,. I will take my sheep out and graze all the land first, before someone else beats me to it, thus profiting me at the expense of the whole; first come first serve. However if EVERYONE would wait until the proper time to graze, the land would be sustainable for everyone instead of just the for the early birds. It only takes one sour apple to spoil the bunch. People want to trust, but sometimes they are too afraid, and the way our leaders (from CEO's to Political Leaders, to the whole credit and mortgage industries) it becomes obvious that trust is harder to come by.
   This was a great article and study, it really is amazing that e-bay and simliar online auctions do work.

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