Arms-Length (ARM)

For goods with intrinsically high levels of uncertainty, it is often better to buy from someone you don’t know...

Design Principles:

  • Build arms length+ into most transactions with high uncertainty in the outcome (i.e., science and funding)
  • Directly deal with problems of asymmetric information. Independent assessments of the reliability of vendors is typically the answer.
  • Replace the utility of implicit trust+ in personal relationships with mechanisms to calibrate levels of trust (over time) in an arms length relationship

Discussion:

  • With purchases of goods of questionable quality, it’s easier to be objective during the purchase, and to be tough during disputes, when the purchase is made at arms length. Personal relationships are not at stake.
  • There is always someone offering low-quality goods in a market that, on the whole, appears to offer goods of reasonable quality – the downside of arms length
  • Arms length is often the best way to avoid collusion between specific buyers and sellers

Quotes:

  • Never buy a used car from friends or family - it will only bring grief and anguish. – old saw

References:

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