15 ms·

The End of Asymmetric Information

45 points by Vigier 12y ago

lukifer 12y ago
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 12y ago
>> 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 12y ago
  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.
  - ticviking 12y ago
    I believe that is called universal healthcare...
    - maxxxxx 12y ago
      Not necessarily. There can also be private companies that offer insurance for all citizens.
  - 1123581321 12y ago
    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.
    - maxxxxx 12y ago
      I don't see how insuring everybody increases complexity. If anything it should increase efficiency. Two more things should probably happen to make this work: - Eliminate employment-based insurance. Employers should be totally out of the loop - Have providers post the same price for everybody independently how they are insured Works pretty well in other counties
    - jjoonathan 12y ago
      > 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?resourceID=004083 http://healthcarereform.procon.org/view.resource.php?resourc...
- lotsofpulp 12y ago
  I think the problem with "health insurance" is that the purpose of insurance is at not compatible with the goal of providing healthcare to everyone. Insurance is a mechanism for spreading the costs of unknown events with some probability distribution. Out of a population, most of the population will not experience an event (e.g. a car crash), but individuals in the population cannot afford the consequences so they buy insurance where a group of people figure out the probability distribution and how much they need to charge to maintain adequate reserves and pay themselves. On the other hand, healthcare is an event with 100% probability and ridiculously high costs. People's bodies will break down, they will also stay alive for a long time needing expensive medications, and newer, more expensive treatments will be developed to keep people alive even longer. This is not what insurance is made for, and our current health insurance industry is not even real health insurance. It's more like "pay $x a month to get access to negotiated pricing at certain medical facilities and pharmacies". The real solution is for the country to figure out A) does everyone deserve to live, and if so, are the citizens willing to pay for it in taxes B) figure out how much of people's healthcare should be subsidized and start triage
  - rm445 12y ago
    In the real world as it stands, there isn't a 100% probability of ridiculously high costs. Plenty of us will go out with a bang in some way, or at least quietly and quickly. (Perhaps that isn't the utopian ideal). The whole system could be reasonably modelled as personal saving for significant expected costs plus insurance against the really big hitters - I read a rather breathless article singing the praises of Singapore for organising things this way. That doesn't really change for a national system except the country self-insures against the expensive illnesses. I agree wholeheartedly with your last paragraph, but while national health systems probably look nice from the vantage point of the USA, it hasn't really been tested whether such systems will hold together - whether the populace has the will to pay the real costs - in a world that keeps moving in the direction of longer lives with more expensive care.
    - lotsofpulp 12y ago
      Even though I know that it's not exactly 100%, I assumed it since factoring in end of life costs like ambulance, emergency room procedures for resuscitation and whatnot would probably apply to so many people that for the ones that go out without cost is inconsequential, e.g. falling off a bridge or something. And if most people can't even save for a rainy day fund, how can we expect them to save for diabetes and hypertension and dialysis meds that cost hundreds or thousands of dollars? The funny thing is that in the US, we have some stupid hybrid taxpayer/insurance subsidized healthcare scheme called Medicaid, but only if you're old. Bottom line is the US public thinks it's unconscionable (or politically untenable) to deny healthcare if someone is dying, but not in any other situation, and at the same time thinks people should be responsible for providing for themselves, which at current healthcare costs is simply not going to happen.
lovemenot 12y ago
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 12y ago
  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.
deleted 12y ago
[deleted]
kijin 12y ago
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.

45 points by Vigier 12y ago

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 12y ago

>> 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 12y ago
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.
- ticviking 12y ago
  I believe that is called universal healthcare...
  - maxxxxx 12y ago
    Not necessarily. There can also be private companies that offer insurance for all citizens.
- 1123581321 12y ago
  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.
  - maxxxxx 12y ago
    I don't see how insuring everybody increases complexity. If anything it should increase efficiency. Two more things should probably happen to make this work: - Eliminate employment-based insurance. Employers should be totally out of the loop - Have providers post the same price for everybody independently how they are insured Works pretty well in other counties
  - jjoonathan 12y ago
    > 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?resourceID=004083 http://healthcarereform.procon.org/view.resource.php?resourc...
lotsofpulp 12y ago
I think the problem with "health insurance" is that the purpose of insurance is at not compatible with the goal of providing healthcare to everyone. Insurance is a mechanism for spreading the costs of unknown events with some probability distribution. Out of a population, most of the population will not experience an event (e.g. a car crash), but individuals in the population cannot afford the consequences so they buy insurance where a group of people figure out the probability distribution and how much they need to charge to maintain adequate reserves and pay themselves. On the other hand, healthcare is an event with 100% probability and ridiculously high costs. People's bodies will break down, they will also stay alive for a long time needing expensive medications, and newer, more expensive treatments will be developed to keep people alive even longer. This is not what insurance is made for, and our current health insurance industry is not even real health insurance. It's more like "pay $x a month to get access to negotiated pricing at certain medical facilities and pharmacies". The real solution is for the country to figure out A) does everyone deserve to live, and if so, are the citizens willing to pay for it in taxes B) figure out how much of people's healthcare should be subsidized and start triage
- rm445 12y ago
  In the real world as it stands, there isn't a 100% probability of ridiculously high costs. Plenty of us will go out with a bang in some way, or at least quietly and quickly. (Perhaps that isn't the utopian ideal). The whole system could be reasonably modelled as personal saving for significant expected costs plus insurance against the really big hitters - I read a rather breathless article singing the praises of Singapore for organising things this way. That doesn't really change for a national system except the country self-insures against the expensive illnesses. I agree wholeheartedly with your last paragraph, but while national health systems probably look nice from the vantage point of the USA, it hasn't really been tested whether such systems will hold together - whether the populace has the will to pay the real costs - in a world that keeps moving in the direction of longer lives with more expensive care.
  - lotsofpulp 12y ago
    Even though I know that it's not exactly 100%, I assumed it since factoring in end of life costs like ambulance, emergency room procedures for resuscitation and whatnot would probably apply to so many people that for the ones that go out without cost is inconsequential, e.g. falling off a bridge or something. And if most people can't even save for a rainy day fund, how can we expect them to save for diabetes and hypertension and dialysis meds that cost hundreds or thousands of dollars? The funny thing is that in the US, we have some stupid hybrid taxpayer/insurance subsidized healthcare scheme called Medicaid, but only if you're old. Bottom line is the US public thinks it's unconscionable (or politically untenable) to deny healthcare if someone is dying, but not in any other situation, and at the same time thinks people should be responsible for providing for themselves, which at current healthcare costs is simply not going to happen.

lovemenot 12y ago

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 12y ago
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.

deleted 12y ago

[deleted]

kijin 12y ago

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.