The Wall

[wufwugy]

@wuf: Is asymmetric information more than the notion that 2 parties or agencies have different access to information?

That's basically it. The "more", as far as I can tell, is how it can be applied and what we can derive from it. For example, it's typically used in finance with a more narrow definition regarding asymmetry in the information available to a buyer and seller. But it can be thought of very broadly, like how the difference between what physicists know about the universe and what the universe actually is is asymmetric information relevant for whenever physicists interact with the universe. Or things that you know and your girlfriend doesn't and vice versa are asymmetry of information regarding your interactions with each other. A derivative idea is that if that asymmetry were to lessen, hazard would lessen and efficiency would improve.

The problem of asymmetric information is what we try to solve when we regulate financial markets. I believe that the idea can be applied across the board to all markets. My argument for free markets depends on the idea that they more efficiently use information and more efficiently reduce asymmetry of information than otherwise. Without that, I don't think the total free market ideal could hold up.

'Cause confidential information and "top secrets" are a thing that gov't's have. Granted, there are trade secrets that companies have, too, but presumably those ARE being used by the companies to economic advantage. I presume that one company having and using its trade secrets is beneficial to the economy, since its withholding that information from competing companies doesn't prevent the secret from impacting consumer choices. Is this plausible from an economics standpoint?

Great question. I'm not sure I can answer it, or even if I understand it. I do have a couple points of input though. The company uses its trade secrets to benefit itself. Any benefit to the economy that comes from this is secondary. The Invisible Hand idea is that when companies compete, the secondary effect, though unintended, happens nonetheless.

The company not withholding its secret from other companies would likely impact consumer choices. If more information got out, that would affect choice (by revealing more about the product). If more companies competed on providing the product, this would likely impact price and availability, which would impact consumer choice.

I'm curious if there is a preventative aspect of the system which prevents the business side from achieving symmetric information.

I certainly think there is. The seller wants to increase its information while decreasing the buyer's (in specific ways) and vice versa. If you're negotiating for something, and you really really really want it and you are willing to accept embarrassingly low terms, you still don't want the other party to know that. You get more benefit from him having less information (or even from him having bad information).