Asymmetric Information

I came across an interesting tidbit on asymmetric information from Thomas Dilorenzo’s book, Organized Crime: The Unvarnished Truth About Government, drawing from Ludwig von Mises.


Ask yourself these questions: Who knows more about home building— home builders or home buyers? Who knows more about supplying grocery stores with fresh meat—ranchers and farmers, or average consumers? Who knows more about manufacturing automobiles—automotive engineers employed by automobile manufacturers, or car purchasers? Who knows more about producing and marketing articles of clothing—clothing manufacturers and distributors or clothing shoppers?
The point of these rhetorical questions is that all information about all products and services is asymmetrical in successful, capitalist economies because of the division of knowledge (and labor) in society. If we all had symmetrical information about all of the above tasks, none of the above mentioned businesses and occupations would exist. It is neither desirable nor possible for everyone to have symmetrical information. To paraphrase Mises, what distinguishes man from animals is the insight into the advantages that can be derived from cooperation under the existence of asymmetric information and the division of knowledge in society.
In fact, Mises criticized the notion of asymmetric information as an alleged flaw of the market, although he did not use that exact language. “In an economic system in which every actor is in a position to recognize correctly the market situation with the same degree of insight,” he wrote, “the adjustment of prices to every change in the data would be achieved at one stroke. It is impossible to imagine such uniformity in the correct cognition and appraisal of changes in data except by the intercession of superhuman agencies.” We would have to assume that “every man is approached by an angel informing him of the change in data,” Mises continued. Moreover, even if market participants did possess the same data and information, they are bound to “appraise it differently.” – p. 194
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