Imperfect Information and Suboptimal Design
Small cameras have small sensors, which leads to a tradeoff between pixel count and sensitivity. The designer can divide the sensor into lots of individual units, giving the camera a high pixel count but making each unit small. Or he can design it with fewer but larger units. Smaller units are less sensitive, meaning that they either don't pick up an image with low light or pick it up with noise, giving a poor quality image.
The number of pixels in the image a camera produces is close to, although not entirely, an objective fact, routinely included in brief summaries of a camera's characteristics. The sensitivity is a subtler issue. A manufacturer or reviewer can report the highest sensitivity—the equivalent of ASA numbers on film—that the camera can operate at. But the manufacturer can increase that number without improving the camera by accepting more noise in the images. A good review will include a discussion of the quality of the image, and examples, but most consumers are unlikely to look for or use that sort of detailed information.
That gives the manufacturer an incentive to design the camera with more than the optimal pixel count at the cost of lowered sensitivity and lowered quality of image. He is trading off two desirable features only one of which is easily observed by the consumer, hence will put too much weight on that one. Arguably the result is a seven or eight megapixel camera—higher resolution than most photographers most of the time have any use for—that takes lower quality pictures than an otherwise similar five mexapixel camera
I don't know enough about cameras or the camera industry to judge whether the analysis I have just offered is true but I see no reason why it couldn't be. That raises an interesting question. Are there other products for which the same problem exists? Are there other situations where a producer must trade off two desirable characteristics, one of which is much more readily measured by consumers than the other, and produces as a result a suboptimal design?
One possibility that occurs to me is the tradeoff in automobile design between miles per gallon, achieved in part by making a car lighter, and ability to survive a crash. Other suggestions?