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Information asymmetry is everywhere. In some cases this asymmetry is through organised structured hierarchy (employee vs manager/boss vs ceo/founder vs investor

Information asymmetry is everywhere. In some cases this asymmetry is through organised structured hierarchy (employee vs manager/boss vs ceo/founder vs investor) and in some other cases there is no apparent overtly visible hierarchy – like open markets. Markets are "efficient" at transferring money from "stupid" to "smart" people. Here "stupid" or "smart" is directly related to lower or higher in that information/power hierarchy. This hierarchy is also self-amplifying in that it grows the asymmetry gap rapidly such that it becomes a very tall/pointy pyramid. So you could call it a "pyramid scheme". Some schemes are overt/explicit pyramid schemes where flow of value from people lower in hierarchy to people higher is explicitly structured and visible (like most MLM schemes) and some schemes are obfuscated/implicit in this aspect (like corporate job ladder with perf/promo process within employees and between employees vs founders/execs and investors).

grufus 4y ago
I think you are mixing up the general concept "hiearchy" with the very concrete concept of a "pyramid scheme". The defining characteristic of a pyramid scheme is that the income at each level is predominantly connected to the recruitment of new members into the scheme. Twice as many new members per unit time translates to twice as much income, roughly speaking. In management hierarchies, that may play a certain role, but your manager in a company isn't payed proportionally to how many new employees they recruit each month (unless they are explicitly a recruiter). It is rather proportional to the amount of responsibility which often correllates to the number of reports and their reports. In other words, oversimplified, in corporate hierarchies, the pay relates to the number of people below you, while in a pyramid scheme, it relates to the first derivative of that value.
- Adrox 4y ago
  Except even if you receive money for a referral, you are still not getting any money FROM the referral. My company gives 5k if I reference a developer that they hire. But he gets his normal salary, it’s not like he has to pay 5k, or even it’s deducted from the salary. The problem with MLMs is that the money comes from other “members” not from sales… (Basically more than 80% of the revenue is other members and only 20% sales) A normal company 100% of the salaries comes from sales (or shareholders, never from employees).
thomasahle 4y ago
> Markets are "efficient" at transferring money from "stupid" to "smart" people. Here "stupid" or "smart" is directly related to lower or higher in that information/power hierarchy. Why not just say "Markets are efficient at transferring money from less powerful to more powerful people." then?
- robertlagrant 4y ago
  Because not everything is about power. Redefining things as such is a net negative to communication.
  - hikingsimulator 4y ago
    information asymmetry is a kind of power, though. Your rebuke hinges on narrowing definition or common sense understanding of the term.
    - robertlagrant 4y ago
      No, it's not reducing. In theory you can define anything as "power". If I know any fact you don't then, by your definition, I have power. But describing that as a power imbalance is a 100% hindrance to communication.
vanderZwan 4y ago
(Disclaimer: not intended as a complaint/disagreement with vinay_ys' comment, more of a rant about how I feel like how humanity as a whole could do a lot more to escape from zero-sum game scenarios) > Markets are "efficient" at transferring money from "stupid" to "smart" people. Here "stupid" or "smart" is directly related to lower or higher in that information/power hierarchy. Tangent: while this clearly applies in this context, I generally get really frustrated by this narrow way of modeling markets and by extension the economy, TBH, because it leaves out basically everything that's relevant to solving the really hard problems. Specifically, it ignores that real-life scenarios are not only strict hierarchies but complex networks that feature a ton of intransitive asymmetries (think rock-paper-scissors). Like, Buffet and Gates allegedly know about this[0] so it's not exactly obscure, and when you actually ask people on how they deal with trivial examples of it it becomes obvious that it's everywhere and people somehow try to work with it all the time[1], but whenever I hear people discuss markets it seems to be ignored. I dunno, I hope actual economists are less naive than the armchair kind (to which I certainly belong). It kind of makes the misuse of the model feel like applying an algorithm that only works with DAGs to graphs full of cycles. It's not useless (just like how identifying DAGs is really important and useful), but when used to oversimplify complex scenarios it obscures the potential "good" cycles (virtuous ones) and "bad" ones (vicious cycles, deadlocks). [0] https://www.quantamagazine.org/mathematicians-roll-dice-and-get-rock-paper-scissors-20230119/ https://www.quantamagazine.org/mathematicians-roll-dice-and-... [1] https://aeon.co/essays/attempts-to-choose-the-best-life-may-be-doomed-to-failure https://aeon.co/essays/attempts-to-choose-the-best-life-may-...
- vinay_ys 4y ago
  The papers/articles you quoted actually strengthen my argument. The information asymmetry is also about education/comprehension of complex concepts and rules of operating. Vast majority of humans participating in the economy (including a lot of smart techies) don't have sufficient access or strong enough aptitude/interest to seek out and learn such things to make material difference to their decisions. Instead they depend on psychological shortcuts to make "poor" decisions that keeps them lower in that information/power hierarchy. The game theory aspect of it is this – it is in in the best interest of the few to maintain/reinforce the mechanisms at play to keep the masses blissfully ignorant and continue to be dependant on those psychological shortcuts. If more and more people become conscious of it and start to "squeeze" the value in the middle of the value-chain, then the value accruing to the people at the top significantly reduces. Usually when that happens, powerful people change the rules of the game to reintroduce more information asymmetry again.

grufus 4y ago

I think you are mixing up the general concept "hiearchy" with the very concrete concept of a "pyramid scheme". The defining characteristic of a pyramid scheme is that the income at each level is predominantly connected to the recruitment of new members into the scheme. Twice as many new members per unit time translates to twice as much income, roughly speaking. In management hierarchies, that may play a certain role, but your manager in a company isn't payed proportionally to how many new employees they recruit each month (unless they are explicitly a recruiter). It is rather proportional to the amount of responsibility which often correllates to the number of reports and their reports. In other words, oversimplified, in corporate hierarchies, the pay relates to the number of people below you, while in a pyramid scheme, it relates to the first derivative of that value.

Adrox 4y ago
Except even if you receive money for a referral, you are still not getting any money FROM the referral. My company gives 5k if I reference a developer that they hire. But he gets his normal salary, it’s not like he has to pay 5k, or even it’s deducted from the salary. The problem with MLMs is that the money comes from other “members” not from sales… (Basically more than 80% of the revenue is other members and only 20% sales) A normal company 100% of the salaries comes from sales (or shareholders, never from employees).

thomasahle 4y ago

> Markets are "efficient" at transferring money from "stupid" to "smart" people. Here "stupid" or "smart" is directly related to lower or higher in that information/power hierarchy. Why not just say "Markets are efficient at transferring money from less powerful to more powerful people." then?

robertlagrant 4y ago
Because not everything is about power. Redefining things as such is a net negative to communication.
- hikingsimulator 4y ago
  information asymmetry is a kind of power, though. Your rebuke hinges on narrowing definition or common sense understanding of the term.
  - robertlagrant 4y ago
    No, it's not reducing. In theory you can define anything as "power". If I know any fact you don't then, by your definition, I have power. But describing that as a power imbalance is a 100% hindrance to communication.

vanderZwan 4y ago

(Disclaimer: not intended as a complaint/disagreement with vinay_ys' comment, more of a rant about how I feel like how humanity as a whole could do a lot more to escape from zero-sum game scenarios) > Markets are "efficient" at transferring money from "stupid" to "smart" people. Here "stupid" or "smart" is directly related to lower or higher in that information/power hierarchy. Tangent: while this clearly applies in this context, I generally get really frustrated by this narrow way of modeling markets and by extension the economy, TBH, because it leaves out basically everything that's relevant to solving the really hard problems. Specifically, it ignores that real-life scenarios are not only strict hierarchies but complex networks that feature a ton of intransitive asymmetries (think rock-paper-scissors). Like, Buffet and Gates allegedly know about this[0] so it's not exactly obscure, and when you actually ask people on how they deal with trivial examples of it it becomes obvious that it's everywhere and people somehow try to work with it all the time[1], but whenever I hear people discuss markets it seems to be ignored. I dunno, I hope actual economists are less naive than the armchair kind (to which I certainly belong). It kind of makes the misuse of the model feel like applying an algorithm that only works with DAGs to graphs full of cycles. It's not useless (just like how identifying DAGs is really important and useful), but when used to oversimplify complex scenarios it obscures the potential "good" cycles (virtuous ones) and "bad" ones (vicious cycles, deadlocks). [0] https://www.quantamagazine.org/mathematicians-roll-dice-and-get-rock-paper-scissors-20230119/ https://www.quantamagazine.org/mathematicians-roll-dice-and-... [1] https://aeon.co/essays/attempts-to-choose-the-best-life-may-be-doomed-to-failure https://aeon.co/essays/attempts-to-choose-the-best-life-may-...

vinay_ys 4y ago
The papers/articles you quoted actually strengthen my argument. The information asymmetry is also about education/comprehension of complex concepts and rules of operating. Vast majority of humans participating in the economy (including a lot of smart techies) don't have sufficient access or strong enough aptitude/interest to seek out and learn such things to make material difference to their decisions. Instead they depend on psychological shortcuts to make "poor" decisions that keeps them lower in that information/power hierarchy. The game theory aspect of it is this – it is in in the best interest of the few to maintain/reinforce the mechanisms at play to keep the masses blissfully ignorant and continue to be dependant on those psychological shortcuts. If more and more people become conscious of it and start to "squeeze" the value in the middle of the value-chain, then the value accruing to the people at the top significantly reduces. Usually when that happens, powerful people change the rules of the game to reintroduce more information asymmetry again.