One of the great economists of our time, Kenneth Arrow, died recently. He covered so many topics so well, that it is impossible to pigeonhole him. For his contributions to highly abstract general equilibrium theory and welfare economics, Arrow was awarded the Nobel Prize, though he also wrote extensively on matters such as growth economics, health economics, and what I want to talk about here, the economics of information.
Economists in general tend to treat information as just another resource. The more you have of it, the better, though like any resource it must be extracted at a cost. Supply, demand, price and some presumably optimal amount of information, all very basic.
The theory is great if the information is straight, but what about misinformation? Untruth? Deception? Russia is apparently devoting hundreds of millions if not billions of dollars to spreading fake news, convinced that it can serve as a weapon in their quest to expand Russian influence and destabilize the western alliance. In hot wars, misinformation and propaganda can be considered forms of sabotage, punishable by death, or for the fortunate with poetic talent, perhaps just commitment to an insane asylum like Ezra Pound.
True and false information thus both have economic value, depending on how they are deployed. But this makes the economics of information a rather strange economics. Presumably information has value because it tells us something true about the world. We want to know what products the consumer will buy if we are a business, or where the gold is buried if we are a prospector. In neither case would false information be of value; indeed it would be of negative value, sending us off in the wrong direction. But this makes information seem like a plain resource once again. Bad information is like a poorly designed airfoil. When we try to fly, we will end up crashing to the ground. So how then can bad, or misinformation be worth so much to the Russians, or to any nation engaged in military conflict?
Arrow was one of the first economists to understand asymmetrical information. If I have more or better information than you, then I hold a distinct advantage in any bargain or trade. More generally, asymmetrical information can lead to economic inefficiencies—health care perhaps being perhaps the most important example right now.
But I would propose that the problem of information goes deeper than asymmetry, which is reducible to the question of who has more or better information. When we think of deceit, deception, propaganda, and misinformation, we cannot easily divide the informational universe into true and false, good or bad. It all depends on what you are trying to achieve. One doesn’t even need to resort to military situations. Advertisers and marketers use “information” in the most general sense of that word to persuade, entice, convince us to buy. But political debate too is about persuasion, rhetoric that was held in high esteem in classical civilization. There is no obvious true or false information, only information that exerts an effect, that brings about a result.
Arrow himself seems to have given some thought to these matters. In his writings on information, he made several points that now seem highly relevant to the era of fake news. He grasped the problem of too much information, or information overload, and he pointed out that when using information understanding meaning is important. Like mastering a foreign language it takes some investment to learn and understand, to process information. Speaking specifically about organizations and the way they may limit the channels of information, he wrote, “they learn more in the direction of their activity and become less efficient in acquiring and transmitting information not easily fit into the code. Hence, the organization itself serves to mold the behavior of its members.” The result is that, given those high investment and startup costs, most of us will tend to get information from a relatively narrow set of sources we already understand and trust.
When Arrow was writing, it seemed that the main problem was going to be how entities could efficiently acquire and process information. Organizations had advantages in gathering information, by using the classic form of production, the division of labor. They would be very efficient at processing it, because they enjoyed economies of scale. But they would, Arrow thought, have problems learning new things, because scale and efficiency would tend to push them to limit their information channels. Small, intimate groups, on the other hand, might not face these sorts of constraints, particularly if they had a shared understanding that reduced the costs of learning and understanding.
Now the situation looks somewhat different, particularly with regard to misinformation. The information age allows big organizations—the biggest in this case being the state—tremendous advantages that small groups cannot overcome. Organized production and dissemination of information, or misinformation, can take place on a vast scale through many, many channels. Content can be reworked and reformulated so rapidly on such short notice that the sort of intimate personal knowledge shared among people, what Arrow thought would have an advantage given the rigidity of organizational channels, no longer obtains.
Likewise the vast torrent of deceptive, or strategically created information has raised the cost of distinguishing the true from the false. Arrow noted that the most valuable information is that which lets you assess the value, and truth, of other information. Knowing that you know something is true is perhaps more important than knowing the original information. But it might be very expensive to learn the truth; though also extremely valuable. The harder and more expensive it is to distinguish the true from the false, the more valuable it is to learn that distinction. When it is crucial to know what is true and what is false, then the one may have to pay a very high cost to learning that small bit of information.
If the age of misinformation threatens to overwhelm earlier, simpler ideas of the true and the false, now more than even it becomes imperative to find devices that can tell us, assure us, that what we know is actually true. That small piece of information, the assurance that we have grasped the truth, has taken on tremendous value, and is well worth the high cost to obtain.
Economists have spent a lot of time studying what they started to call a few decades ago the information economy, all premised on the idea that information was a rather straightforward resource and a positive one for economic welfare. Now might be the time to rethink those assumptions, because the last thing we need is more information if it’s going to be bad information.