Friday, June 29, 2012

Asymmetry of information

There is a concept in economics that is facinating me for a while now and its the concept of asymmetry of information.  One must understand this concept if one wants to get a strategic edge on one’s world.

As per Wikipedia, the Asymmetry of information is defined as “the study of decisions in transactions where one party has more or better information than the other. This creates an imbalance of power…”  lets not look further for now.  This creates a imbalance of power.  To whom?  Well in favor of the people who has either more or better information or both.  And this you can find it everywhere.  Those who make money on the stock market are the ones who gets the information before the others.  Those who gets the jobs are the ones who know the key hiring people in the company.  Those who get the girls are those who are good in flirting and closing.  Those who get the sales are those who are good in identifying the customer’s needs and hidden motivations… and I could go on like this for a very long time.

So seek to have more information and better information than the counter parties in the field you wish to apply your influence.  There is several questions that you must look for and define for yourself:

  1. What information is good information?  Not anything is useful.
  2. Where does the information comes from?  And can you have access or better access to it?
  3. What channel does the information takes to spread?  Can you channel it?  Can you control it?  Or at least can you increase your speed in getting that information from those channels?
  4. What can you do with that information?  How is it useful?
  5. What are you willing to do with that information?
Don't get confused between 2. and 3.  In 2 this pertain to where does the information lies and you can get it.  Before anyone if you can.  In 3. this pertain to where does the information go and how if you cannot have direct access to its source, you may develop better ways to collect it once its out.

The last question is very important (number 5.).  You may get information that could be very useful, but using it would go against your values or life principles.  For example the information in question could either hurt someone or put someone in trouble.  And you have to assess if it’s the kind of information that you do want to use in order to further your cause.  Just as long as it stays legal, the important is to like the person you see in the mirror every morning.

The asymmetry of information can be caused by the followings:

-         Geographical location
-         Lack of means to access it
-         Lack of skills
-         Lack of adequate time
-         Lack of adequate capital
-         Status and influence asymmetry

One must be aware of these sources and adress each of them in their own sphere of influence to maximize what one can make of it.  If one don’t, then the door is open for one’s opponent to get ahead in one of those field and get an edge on one.