The Diagnostic Problem (Pt 1)

When I was a lad, a regular newspaper article was about repair services. Sometimes appliance repair services, sometimes automotive repair services. The article could be repeated every few years as old, single proprietor repair shops closed and new ones opened.

In the jargon of economics, this is a common asymmetric information problem. The owner only knows that the device isn't working, but has no idea how it works or how to fix it. The repairperson is supposed to be knowledgeable, to know what's wrong and the cheapest way to fix it. The repairperson is also supposed to be honest, and to propose the cheapest solution to the problem.

The newspaper would take a car or a small appliance with a known problem, diagnosed by someone working for the newspaper who was an expert in repairing the thing being studied. It would be something that caused disastrous symptoms, like a TV that was blank, or a car that wouldn't run, but the cause was always very simple, something a competent repairman could fix for less than £1. Then the device would be sent to a large number of repair shops in the city where the newspaper was located, accompanied by someone who looked completely ignorant of the interior workings of the device.

Always, some repair shops would give the correct diagnosis and offer to fix it for less than £1, and always, some repair shops would try to convince the naïve person bringing the device in for repair that the repair would cost at least £100. In the case of small appliances, the repairman would point out that buying a new one from his shop would be cheaper than trying to repair the problem.

This is what is called the diagnostic problem, because the diagnostician knows what the problem is and the various ways to fix it, both cheap and expensive. Meanwhile, the owner has absolutely no idea of what the problem is or even roughly how much it should cost to fix it.

To be continued...