Good investors usually do their homework. But what happens when a company’s product is so new or so technical that it’s hard to judge whether it’s good or not, even after lots of research? These are what economists call “credence goods”—things whose quality is difficult to judge, even after you pay for them. Lawyers and car mechanics sell credence goods. So do doctors.
The rise and fall of blood-testing start-up, Theranos, tells us a lot about credence goods.
