

The End of Asymmetric Information - Vigier
http://www.cato-unbound.org/2015/04/06/alex-tabarrok-tyler-cowen/end-asymmetric-information

======
lovemenot
Asymmetric Information is an economic inefficiency. On its face, it should be
eliminated. Cato Institute describes a trend which appears inexorable.

Yet, Asymmetric Information does allow various agencies to attempt to add
value by exploiting those inefficiencies. Remove asymmetry and we are left
with perfectly efficient markets whose value accrues, not to the participants,
but to the owners of the marketplaces: those who have access to sufficient
capital to operate at scale large enough to drive down margins to where only
_they_ can compete.

My view is that agents, including individuals, must strive to preserve their
economic advantage by jealously guarding their information streams and by
poisoning competitors' streams with respect to data in which they have an
economic interest.

Thereby, the inefficiencies of asymmetric information may be eliminated, as
they should be. But the value of doing so will tend to be shared among all
those who have an economic interest in adding value, by increasing efficiency.
Thus a new information marketplace can be realised: one in which value from
efficiency is distributed, rather than centralised.

To achieve this, massively decentralised information architectures are
required.

~~~
emmelaich
I've often thought the same.

The haunting corollary is that the overwhelming popular opinion that we strive
to make everyone equal in fact embeds and solidifies a tendency to the
opposite.

------
lukifer
I would recommend Jaron Lanier's "Who Owns The Future?"; the short version is,
we're so hooked on free or quasi-free goods and services (which includes
Amazon), that capturing and privatizing market data has become the default
business model, a process that started with the rise of credit/debit cards.
Though in many ways consumers are more empowered than they used to be thanks
to Internet (at least on a per-transaction basis), the majority of the benefit
goes to centralized Big Data network providers.

------
phkahler
>> The actual problems with health insurance markets have less to do with
information asymmetry and adverse selection than with too much information.
That can make some people’s insurance very expensive at actuarially sound
rates. For instance if you have a cancer of a given kind, this is verifiable
to the outside world, and if the treatment costs are $200,000, the cost of an
insurance policy will in turn be about $200,000. Buying the policy won’t be
cheaper than buying the treatments, and in that sense the market for insurance
is not always present. That is a very real public policy problem, but it is
not well understood by invoking standard theories of asymmetric information.

I think the problem with insurance is too much competition. With a single
provider there is no incentive to lock people out. The entire point of
insurance is to amortize unexpected costs over time and population. In a
market with multiple providers and people changing providers there is a
financial incentive to exclude higher cost individuals rather than just spread
the cost of treatment over everyone. This is not an argument in favor of any
particular system, just pointing out a problem with the notion of free market
insurance plans. There are plenty of problems with every solution.

~~~
maxxxxx
there should just be one country-wide insurance pool. No company insurance
pools or any other insurance through groups. that way risk gets spread out
nicely. And I think administrative costs would be much lower.

~~~
1123581321
The difficulty is that when a risk pool goes from large to very large, the
proportionate amount of necessary reserves does not decrease meaningfully, but
the costs of managing the complexity of the relationships with all parties -
employees, customers, providers - increase, in some cases, exponentially.

This suggests that a decentralized network of risk pools balanced near the
optimal point between risking being too small and being too expensively and
chaotically large would be more effective than a single payer.

The public-private system in the United States _could_ function this well, but
many factors prevent it from occurring, some by design and some due to
context/inertia.

~~~
jjoonathan
> when a risk pool goes from large to very large, the proportionate amount of
> necessary reserves does not decrease meaningfully

What? Summed random fluctuations grow like sqrt(N), so per person risk "grows"
(falls) like sqrt(N)/N. Larger population = less risk = lower cost of risk
because the Law of Large Numbers is on your side. This is how casinos work.
It's also why you aren't crushed to death by thermodynamic pressure
fluctuations in the atmosphere.

> the costs of managing the complexity of the relationships with all parties -
> employees, customers, providers - increase, in some cases, [grow]
> exponentially.

The hell? Do you really mean to claim that having 5 different insurance
companies and 100 different policies all with different paperwork is going to
_increase_ efficiency vs having one for everyone (nevermind the overhead of
all the fighting over who pays, advertising, paying for access to capital,
etc)? Neither common sense nor reality agrees:

    
    
        Medicare: 3.1% administrative overhead
        Private Health Insurance: 14.1% administrative overhead
    

[http://healthcarereform.procon.org/view.resource.php?resourc...](http://healthcarereform.procon.org/view.resource.php?resourceID=004083)

~~~
1123581321
Yes, however, beyond a certain size, the returns of large numbers diminish,
but other costs increase - both internally and externally.

Medicare is a good example of a very large system that mostly has external
costs. Due to the enormous complexity of the system it administers, its
necessarily strict and automatic rules harm patients well beyond the ~11% cost
savings difference you cite, and drive doctors whose diagnoses are too nuanced
and studied away from Medicare patients towards more flexible insurers.

However, Medicare doesn't risk financial catastrophe significantly more than
Humana or Kaiser or even Google's self-insurance pool.

Also, please do not preface comments with "what?" I understand you are trying
to portray shock at how ignorant a comment I've made, but the content of your
comment makes it unnecessary and it's rude.

------
kijin
Symmetries and asymmetries of information don't exist in a vacuum. They are
often caused by, and in turn cause, symmetries and asymmetries of power [1].

Greater symmetry of some types of information may lead to greater asymmetry of
power in the long term, and vice versa. And it's the latter, not the former,
that we should be ultimately concerned about.

For example, if everyone knows where everyone else is, there's symmetry of
location information. But since this symmetry doesn't exist in a vacuum but in
the real world of three-letter agencies that already wield a lot of arbitrary
power IRL, it results in an even greater asymmetry of power where most people
feel powerless against the all-powerful eyes of the three-letter agencies.

On the other hand, if ordinary citizens can tell who the defense contractors
are playing golf with, but the DoD doesn't know who we're talking to online,
there's an asymmetry of information. But since we live in a world where a
large asymmetry of power already exists between the DoD and ordinary citizens,
this asymmetry of information actually helps counteract the existing asymmetry
of power. The result is more symmetry of power, in the form of better
accountability.

Increasing symmetry of information without regard for the overall balance of
power is the kind of "transparency" that Mark Zuckerberg promotes. Increasing
symmetry of information that actually help increase symmetry of power is what
whistleblowers try to do, and that's the kind of "transparency" that I want to
see more of.

[1] Yes, knowledge is power, and France is bacon. But information is not
knowledge, at least not directly, and there are also other kinds of power. It
takes more than mere possession of raw information to wield power effectively
IRL.

