Information Asymmetry Meets Data Security: The Lemons Market for Smartphone Apps

  • Margaret W. Smith


This article examines the market for smartphone applications (commonly called “apps”) with the goal of assessing current information asymmetry about app security and consumer privacy. It also reviews signaling as a potential policy intervention designed to address information asymmetry. Given the rapid growth of the app market, comparisons can be drawn between the market for smartphone apps and a market for lemons, as commonly found in a developing economy that lacks structured quality-control mechanisms. Despite growing concern over personal data collection and how these data are used, traded, and/or sold, the public remains relatively uneducated about and either ignorant of or apathetic toward privacy concerns when downloading apps to their smartphones. Incorporating simple security cues—similar to the “star” scale used in consumer reviews—is one example of a signaling mechanism that could help address the information asymmetry in the app marketplace.
This article first examines similarities between the smartphone app market and George A. Akerlof’s classic lemons market. The goal is to expose the lemons market for app security—to simplify the scenario, an app will either be secure or insecure. Regular consumers do not have full information and therefore make purchases without knowing if an app is secure or insecure. Next, the article investigates how average consumers make decisions about cybersecurity and whether addressing the information asymmetry in the app market will alter decision making. Finally, it suggests incorporating a simple, icon-based security signal to reduce the information asymmetry and discusses the potential impact of such a policy.