There is an economic phenomenon known as “asymmetrical information”, which occurs when one party to a transaction has more information than the other.

I experienced an extreme version of this, although one that was eventually corrected, in the carpet souk in Abu Dhabi this weekend.

Having spent most of last week in Dubai and having a couple of days to kill before today’s FT/DIFC conference, I decided to drive down to Abu Dhabi to take a look at the largest emirate of the United Arab Emirates.

Once there, I ventured to the carpet souk, a row of apparently identical stores in a one-storey block near the port, to see what I could buy. I entered one of them as was warmly greeted by the storekeeper, who laid out an array of carpets and rugs for me to buy.

I liked the pattern on one and asked what it was. “Silk from Iran, made in Turkey” was the reply. I asked how much it was. “Six hundred and fifty dirhams,” he replied.

Here was the first aspect of asymmetrical information. I had no idea what a silk carpet made in Turkey was worth. So I adopted the most basic bargaining tactic of offering a third of what he had suggested.

After a bit of back of back and forth, I worked my way up from 200 dirhams to 350 – about $90 – and we shook hands on it.

I went away reasonably happy although still uneasy that I had no idea whether the item was worth what I had paid for it or not. I had enjoyed the experience, however, so I figured that this, plus a small carpet, was probably worth $90.

After driving away and parking elsewhere in town, however, I took another look at the carpet and found a label still attached to the back. This brought home the second aspect of asymmetrical information during our bargaining session: I had not known what I was buying.

"Made in Belgium, 100 per cent Viscose,” the label read.

At this point, I was caught between just deciding I had been conned and leaving it at that or going back to confront the carpet shop owner. I decided on the latter.

When I got back, several of the carpet owners were taking afternoon naps and the shop was closed. Eventually, after a bit of shrugging and obfuscation from a couple of guys who were hanging around, I managed to get the owner summoned back by mobile phone.

He was, naturally, unabashed and offered me a bigger carpet for the same price instead. But I insisted on my money back and after some haggling, I got it. We concluded the bargain by sitting down, drinking cans of Coca-Cola and declaring ourselves to be friends.

All in all, I found it an educational experience, both in economic and human terms.

November 19th, 2007 in Uncategorised | Permalink