After reading this article on hedge funds (found through O’Reilly Radar) and Freakonomics in quick succession, I haven’t been able to stop thinking about asymmetric information, which is quite a disadvantage when you’re feverishly trying to pack up all your stuff and move. When one party to a transaction possesses knowledge that the other doesn’t, that’s asymmetric information. When there’s asymmetric information, there’s market inefficiencies and opportunities for arbitrage. There’s also opportunities for exploitation – used car salesmen selling lemons, real estate agents selling houses with weak foundations, and so forth.
Mutual and hedge fund managers use their asymmetric information to make money – there’s enough opportunities there to do good business. There’s also a lot of opportunity to use asymmetric information in Internet marketing – by using what you know and others don’t, you can buy traffic on the cheap. A whole host of companies have sprung up that take advantage of this business model. It’s a good way to make money over the short term; however, there’s a secretiveness to it I dislike. As an Internet user, I don’t like the idea of giving up a lot of valuable information for a limited amount of webservices – there’s this nagging voice in my head that says ‘you just gave away something worth a lot of money for e-peanuts.’ Yet I never can confirm my suspicions, because of the asymmetric information. The webservice provider knows just how much my information is worth; I haven’t got a clue.
While I suspect that while all the short-term opportunities lie in taking advantage of asymmetric information, the long-term ones lie in eliminating it. When websites are open and transparent about their business dealings, I pay attention. The search engine snap.com is the clear leader here – just look at their stats page. WhizSpark and Corante are both being very open about their business plans, which is a step in the right direction. And although it’s not a website, also worth noting is John DeMayo’s recent post on home purchase lead inventory, where he states how much certain leads are actually worth. Nothing I didn’t know, but it’s a rare thing to see it publicly posted.
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