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There is something quite interesting in this - you claim that “free markets” are inhibited by a lack of information. I’m not sure information is requisite in “

by dfee 8y ago

There is something quite interesting in this - you claim that “free markets” are inhibited by a lack of information. I’m not sure information is requisite in “free markets”; is it? I like the idea that a free market requires some information liquidity but I’m unfamiliar with any economic theories / philosophy on the subject. Anyone here have some information that can be explored alongside that idea?

mox1 8y ago
Access to information is a pretty big requirement to a free market. In fact models of the free market assume "perfect information". https://en.wikipedia.org/wiki/Perfect_information https://en.wikipedia.org/wiki/Perfect_information
- dfee 8y ago
  I can’t find anything on there that supports the idea that free markets are modeled on “perfect information”. I wouldn’t think that’s the case, anyway. Because marketing/advertising/awareness is a cost with diminishing returns, meaning it’s be prohibitively expensive to inform everyone of your product in the market, much less make accessible ALL products in a category for comparison shopping for any customer at any given time (aside from a singularity event). I do think markets require some information liquidity to be maintainable, and I generally understand free markets to be free of coercion. This sounds more like an “transparent market” though I’m not sure that’s a defined concept.
  - dfee 8y ago
    So after some light reading, theoretical free markets are predicated on complete information, and known to be impossible to achieve for the reason I mentioned. Interesting.
    - themagician 8y ago
      We assume "perfect information" because that's what lets us create simply supply and demand functions. Obviously in the real world you rarely (if ever) have perfect information—and we have models to deal with that—but healthcare has almost zero information. You either can't make a choice because you literally can't (only one provider in your area) or you can't make a choice because you don't have pricing information. So you can't maximize your own utility, because you don't know what options lead to that outcome. Just about the ONLY assumption that holds true in healthcare is that firms maximize profits. And, in a twist of irony, the only healthcare provider to provide information on pricing is Kaiser Permanente—which is a non-profit. Yeah, they still do maximize profits, but not for shareholders. So you could make the argument that healthcare as a whole meets exactly zero of the assumptions necessary for any kind of free market model to apply.
- frgtpsswrdlame 8y ago
  Those aren't free market models, those are 'perfect competition' models. They're not the same thing.
  - themagician 8y ago
    They are. A free market model typically has five basic assumptions built into it. See my comment above.
    - frgtpsswrdlame 8y ago
      No. >Pick up any text book and before you even get to supply and demand you will go through the "assumptions" that must be true in order for a free market to function. You will go through the assumptions that must be true in order for a market to be in a state of perfect competition. Most econ books should be pretty good about this lanugage. 'Free market' is actually more about political philosophy than economics although it's usually cloaked in the language of normative economics.
      - themagician 8y ago
        Perfect competition is typically listed as an assumption of a free market. I mean, at least when I was a TA.
themagician 8y ago
Yes, it is. This is literally an economics 101 thing. Pick up any text book and before you even get to supply and demand you will go through the "assumptions" that must be true in order for a free market to function. They are usually listed as: Perfect information Perfect competition Mobility of capital and labor Firms maximize profits Consumers maximize utility A lot of people (most?) who champion free market economics have no idea what they are talking about. They could not pass the first quiz in an Econ 101 class. In healthcare, at least in the decisions of consequence, you typically have no information and no choice.
- dfee 8y ago
  You got me. I haven’t formally studied Econ, and maybe I would be one of those chumps you would mock for failing the first Econ 101 test. Anyway, that’s all somewhat irrelevant. I asked a question wanting to know more about “free markets” as is commonly used in discussion, and not the theoretical concept which apparently does require complete information and is incompatible with the common / non-theoretical construct. My curiosity remains, so I’ll ask if you know of any approachable resource that discusses the taxonomy of market models and their levers? (In the past I have’nt found Amazon’s ranking of books to be useful as they’re written for entertainment, not exploration).
- deleted 8y ago
  [deleted]
- CWuestefeld 8y ago
  Well, you're right that it's an econ 101 thing - because it's not a grad-level econ thing. Real economists understand that the real world differs from those simplistic models, and have (or are working on) other approaches that better model the real world. It's just like in Physics 101 you're dealing with point masses on a frictionless surface. Later on you learn abut friction and inertia, and still later you get into relativity. We frequently start with that simplified view of the world, but there aren't any real professionals who believe that's the end of the story. Markets do exist, despite the fact that your assumptions don't hold true to varying degrees.
thomastjeffery 8y ago
The benefit of a free market is that businesses must compete by providing better service or better prices to consumers. That is entirely pointless unless consumers can actually choose the better service or price.
dragonwriter 8y ago
> I’m not sure information is requisite in “free markets”; is it? No, but information (specifically perfect information about cost and all benefits, to an infinite time horizon, of economic decisions among all market participants) is a (but not the only important) central assumption in the theory underpinning the conclusion that free markets are optimal in terms of economic efficiency. You can have a free market where this isn't even approximately true, of course, but the farther it is from true—ceteris paribus—the weaker the argument for the desirability of free markets is.
- themagician 8y ago
  > You can have a free market where this isn't even approximately true, of course, but the farther it is from true, the weaker the argument for the desirability of free markets is. That's debatable. In some markets (Veblen/Giffen goods, goods with a price elasticity that approaches zero, etc.) you could say that information doesn't matter because price is irrelevant, but I personally would say that you don't have a free market or any approximation of such without at least reasonable information. Which, you know, is up for interpretation.
  - dragonwriter 8y ago
    I think there is a semantic issue where some people use free markets to mean markets run by mutual exchange by agreement between participants, and see the conditions that make such markets efficient as separate factors which may or may not be present, and other who use “free market” to include the combination of voluntary exchange with some or all of the conditions that make such exchange efficient.
s73v3r_ 8y ago
If information is not a requisite, then how do you actually know what you're paying for? Or know that you're getting what you're charged for?

by dfee 8y ago

mox1 8y ago

Access to information is a pretty big requirement to a free market. In fact models of the free market assume "perfect information". https://en.wikipedia.org/wiki/Perfect_information https://en.wikipedia.org/wiki/Perfect_information

dfee 8y ago
I can’t find anything on there that supports the idea that free markets are modeled on “perfect information”. I wouldn’t think that’s the case, anyway. Because marketing/advertising/awareness is a cost with diminishing returns, meaning it’s be prohibitively expensive to inform everyone of your product in the market, much less make accessible ALL products in a category for comparison shopping for any customer at any given time (aside from a singularity event). I do think markets require some information liquidity to be maintainable, and I generally understand free markets to be free of coercion. This sounds more like an “transparent market” though I’m not sure that’s a defined concept.
- dfee 8y ago
  So after some light reading, theoretical free markets are predicated on complete information, and known to be impossible to achieve for the reason I mentioned. Interesting.
  - themagician 8y ago
    We assume "perfect information" because that's what lets us create simply supply and demand functions. Obviously in the real world you rarely (if ever) have perfect information—and we have models to deal with that—but healthcare has almost zero information. You either can't make a choice because you literally can't (only one provider in your area) or you can't make a choice because you don't have pricing information. So you can't maximize your own utility, because you don't know what options lead to that outcome. Just about the ONLY assumption that holds true in healthcare is that firms maximize profits. And, in a twist of irony, the only healthcare provider to provide information on pricing is Kaiser Permanente—which is a non-profit. Yeah, they still do maximize profits, but not for shareholders. So you could make the argument that healthcare as a whole meets exactly zero of the assumptions necessary for any kind of free market model to apply.
frgtpsswrdlame 8y ago
Those aren't free market models, those are 'perfect competition' models. They're not the same thing.
- themagician 8y ago
  They are. A free market model typically has five basic assumptions built into it. See my comment above.
  - frgtpsswrdlame 8y ago
    No. >Pick up any text book and before you even get to supply and demand you will go through the "assumptions" that must be true in order for a free market to function. You will go through the assumptions that must be true in order for a market to be in a state of perfect competition. Most econ books should be pretty good about this lanugage. 'Free market' is actually more about political philosophy than economics although it's usually cloaked in the language of normative economics.
    - themagician 8y ago
      Perfect competition is typically listed as an assumption of a free market. I mean, at least when I was a TA.

themagician 8y ago

Yes, it is. This is literally an economics 101 thing. Pick up any text book and before you even get to supply and demand you will go through the "assumptions" that must be true in order for a free market to function. They are usually listed as: Perfect information Perfect competition Mobility of capital and labor Firms maximize profits Consumers maximize utility A lot of people (most?) who champion free market economics have no idea what they are talking about. They could not pass the first quiz in an Econ 101 class. In healthcare, at least in the decisions of consequence, you typically have no information and no choice.

dfee 8y ago
You got me. I haven’t formally studied Econ, and maybe I would be one of those chumps you would mock for failing the first Econ 101 test. Anyway, that’s all somewhat irrelevant. I asked a question wanting to know more about “free markets” as is commonly used in discussion, and not the theoretical concept which apparently does require complete information and is incompatible with the common / non-theoretical construct. My curiosity remains, so I’ll ask if you know of any approachable resource that discusses the taxonomy of market models and their levers? (In the past I have’nt found Amazon’s ranking of books to be useful as they’re written for entertainment, not exploration).
deleted 8y ago
[deleted]
CWuestefeld 8y ago
Well, you're right that it's an econ 101 thing - because it's not a grad-level econ thing. Real economists understand that the real world differs from those simplistic models, and have (or are working on) other approaches that better model the real world. It's just like in Physics 101 you're dealing with point masses on a frictionless surface. Later on you learn abut friction and inertia, and still later you get into relativity. We frequently start with that simplified view of the world, but there aren't any real professionals who believe that's the end of the story. Markets do exist, despite the fact that your assumptions don't hold true to varying degrees.

thomastjeffery 8y ago

The benefit of a free market is that businesses must compete by providing better service or better prices to consumers. That is entirely pointless unless consumers can actually choose the better service or price.

dragonwriter 8y ago

> I’m not sure information is requisite in “free markets”; is it? No, but information (specifically perfect information about cost and all benefits, to an infinite time horizon, of economic decisions among all market participants) is a (but not the only important) central assumption in the theory underpinning the conclusion that free markets are optimal in terms of economic efficiency. You can have a free market where this isn't even approximately true, of course, but the farther it is from true—ceteris paribus—the weaker the argument for the desirability of free markets is.

themagician 8y ago
> You can have a free market where this isn't even approximately true, of course, but the farther it is from true, the weaker the argument for the desirability of free markets is. That's debatable. In some markets (Veblen/Giffen goods, goods with a price elasticity that approaches zero, etc.) you could say that information doesn't matter because price is irrelevant, but I personally would say that you don't have a free market or any approximation of such without at least reasonable information. Which, you know, is up for interpretation.
- dragonwriter 8y ago
  I think there is a semantic issue where some people use free markets to mean markets run by mutual exchange by agreement between participants, and see the conditions that make such markets efficient as separate factors which may or may not be present, and other who use “free market” to include the combination of voluntary exchange with some or all of the conditions that make such exchange efficient.

s73v3r_ 8y ago

If information is not a requisite, then how do you actually know what you're paying for? Or know that you're getting what you're charged for?