[Intro deleted]
In economics and contract theory, information asymmetry deals with the study of decisions in transactions where one party has more or better information than the other. This creates an imbalance of power in transactions which can sometimes cause the transactions to go awry. Examples of this problem are adverse selection and moral hazard. Most commonly, information asymmetries are studied in the context of principal-agent problems. [Wikipedia]
Asymmetric information primarily refers to cases in which the buyer has less information than the seller about the kind of risks and costs they might expose themselves to via the transaction (think of someone trying to sell a house or a used car that they know is about to fall apart).
As an extension, or refinement of the concept of asymmetric information, “asymmetric intentions” refers to cases in which different parties involved in a transaction don’t just have different information, but totally different assumptions of what the purpose of the transaction is, or different understandings of what exactly is being traded.
For example, there are apparently knowledgeable and sane adults who sincerely believe that companies ought to be charitable towards their customers. I’m not just talking about the expectation of courtesy and respect, I’m talking about people who interpret incentives as gifts (thanks to advertising that presents them as such) and become irate when the specific product they want doesn’t have the same rebate or discount as stuff being cleared out. They’re not just trying to negotiate, they’re truly insulted (to the point of making a raging spectacle), and go from one extreme (expecting charity) to the other: “Oh so you’re trying to screw me just because I want this instead of that?!!”
I’ve had some unbelievable conversations with people who are beside themselves, complaining about how unfair it is that customers who buy a low-demand product get a better deal than someone buying a shiny new product that flies off the shelves. Granted, these cases are rare, but the extreme cases may illustrate something that occurs in subtler yet even more pernicious ways.
Entire industries have developed in which customers are buying a good or service for the sake of something that sellers are either using as bait, or don’t even realize they’re selling. This creates further asymmetries and complex tensions that are impossible to account for, which makes long term customer relationships difficult to manage as they degenerate into mutually incomprehensible intentions.
The cell phone industry, where I worked for six years, demonstrated this to me. People come in for an awesome new phone that’s subsidized by the service provider and discounted even more if the customer commits to a multi-year contract. The service providers meanwhile want people paying for service, for as long as possible; the handset is secondary. Customers ought to understand that, and it’s in the providers’ best interests that they do, so customers will be able to negotiate the most mutually beneficial arrangement, providing the most accurate information about their wants and needs, instead of committing to something they don’t want and eventually feeling betrayed when they come to their senses, accusing the company of running an evil scam, antagonizing (or terminating) their relationship forever, and approaching their next negotiation as more of a fight.
This concept of asymmetric intentions is extremely relevant to the causes and conditions of our current economic crisis. What got me going on all this today was this William Hanley column in today’s National Post: “Market was not established to manage savings“:
Rightfully, investors feel betrayed, believing they have kept their part of the bargain — putting their savings in what they thought were safe hands. The Street, they believe, has not kept its part of the bargain — good, solid stewardship of assets.
The problem is that, at heart, the Street is not there to be a good steward, but a gatherer of capital for business with no end of self interest.
To people investing for retirement, the face of Wall Street is their financial advisor — usually a salesperson posing as a sage. Mom and Pop see a commercial on TV in which a family goes into their bank, worried about how they’ll ever pay for their kids’ school and have enough for their retirement, to find out they’re “richer than they think” from an assuring advisor who’s smart and great with kids — a friend, really — so they go in and see one of these friendly sages, who shows them some charts and graphs and sets up a plan designed to grow their wealth and give them a comfortable and secure retirement. But what Mom and Pop don’t see is that their friendly sage was a bank teller six months ago, who was promoted largely on the basis of their ability to sell, who learned everything they know about investing from a sales course, and who needs to meet their monthly quota in order to keep climbing the ladder. The investment plan they signed up for is essentially a mass-market product developed for its marketability and profit margin.
Now there’s nothing inherently wrong with developing products and selling them for the sake of profit, nor am I going to argue that this kind of deception and manipulation is wrong on an ethical level (though I wouldn’t argue with anyone who believes that it is). My argument is that this kind of manipulation is wrong on a business level: it hurts long-term sustainability and profits.
Actually, I’m not going to make this argument. I’ll let the market demonstrate it for me.
