The Merchant’s Guarantee

Two carpet merchants sold identical-looking rugs. One offered no guarantee. The other offered a full refund within a year if the carpet showed any flaw.

Buyers couldn’t tell the difference between the rugs. But they could tell the difference between the offers. Only a merchant confident in his product’s quality would risk a year-long guarantee. A merchant selling inferior rugs would be ruined by returns.

The guarantee was a signal. It cost nothing if the carpets were good. It cost everything if they were bad. That asymmetry made it credible.