The graph lit up the projector in the front of the classroom.
A left triangle was the star attraction. A dizzying array of shading, dotted lines and math formulas balkanized its interior.
This diagram was supposed to illustrate pricing power. But to me, it resembled an eye chart.
My economics professor worked his way through the triangle. The top left corner represented the most that a company could feasibly charge for its services. But it was a price that they’d never actually set.
They couldn’t.
The professor explained that companies are saddled with imperfect information. They don’t know every move their competitors will make. They don’t understand which price is at the top of each consumer’s budget. And they have no concrete idea how financial markets will react.
Given that gumbo of uncertainty, companies needed to figure out the next best thing. They need to determine which price would maximize upside and minimize risk.
That’s what the various formulas and lines on this graph were for. And that’s what I’d need to master on the upcoming exam.
I did ultimately master the concept. Then I promptly forgot it.
But the term imperfect information? That was unforgettable.
I’ve found it odd that ambiguity is an indelible part of economic models.
But perhaps I shouldn’t.
What do you do with your free time?
It’s a question I hear bandied about now and then.
Friends and acquaintances tend to have the common responses. Binging TV shows. Gardening. Baking bread.
My answer is a little less traditional. I’ll go down a Wikipedia rabbit hole.
You see, I have a thirst for information. There is always more to be gleaned. And when I get started, it’s hard to stop.
I don’t embark on this quest to win game shows or stand out at parties. I do it out of genuine interest.
I lament all that I don’t know. And I wish to bridge that gap.
Others also seek to scratch this itch. It’s why so many people take continuing education courses online. And it’s why companies have robust research departments.
Still, this appetite for learning is not infinite. Many of us readily accept that a knowledge gap will persist.
But what if we didn’t?
What if more of us went down Wikipedia rabbit holes? What if we left no stone unturned in our quest for knowledge?
At first pass, this sounds idyllic. With a full tank of information, we’d never make an error of ignorance again. We’d be able to put our best foot forward every time.
If only it were that simple.
In finance, there is a concept called arbitrage.
This represents the gap between an asset’s true value and its sticker price. The bigger the gap, the more the seller can make on the margin — and the more the buyer is a sucker.
I’ve long despised arbitrage for this exact reason. Any practice that involves exploiting others seems immoral to me.
But arbitrage does have its advantages.
In a capitalist market, it offers incentives for both sellers and buyers. The sellers are motivated to offer up goods when there’s an opportunity for profit. And the buyers are motivated to uncover options with the least hefty gap.
This motivation drives action, keeping the economic engine turning. It spurs innovation, dangling a hefty reward for displacing quo. And it inspires branding, redefining the notion of value.
These developments have made us better as a society. Even if the individuals who make up our society have gotten fleeced along the way.
Perhaps that Gordon Gekko line from Wall Street wasn’t an indictment on our collective nature. Perhaps greed actually is good.
Arbitrage is, by nature, an invention of imperfect information. If both parties in a deal had the same intel, there would be no invisible tension. The buyer and seller would exchange money and goods, and that would be that.
But such exchanges would happen far less often.
With so little incentive to leverage an advantage, buyers and sellers would only make a deal at the time of highest need. And with such little marketplace activity, there would be little room for our culture to evolve and grow.
We would effectively become Amish. All while hoarding a war chest of facts in our heads.
Information without a practical purpose.
No, arbitrage isn’t perfect. But it’s hardly the opposite of the ideal.
In ancient times, much of the world’s information could be found in one location.
That location was a massive library on the shores of the Mediterranean Sea.
The library of Alexandria was a marvel. The first great repository of the written word, it offered its visitors a unique opportunity. The chance to accumulate more knowledge than their ancestors ever could.
Then, all that information went up in flames.
So much of this event remains an enigma. There’s no way to know for sure why the library burned, or what its demise meant to those who lived in its shadow.
But the modern-day response to the burning of Alexandria’s library is nearly unilateral. We treat the conflagration as a wrong that must be righted. And a great many of us — from scholars to wealthy connoisseurs to the founders of Google — have sought to recreate what once towered over the sea.
Selfishly, I admire this ethos. After all, it provides me endless fodder for my Wikipedia rabbit holes.
But I often wonder if we got the story of Alexandria all wrong.
Maybe the fire wasn’t an unvarnished tragedy. Maybe it was a warning of the dangers of our hubris.
One not unlike the tale of Icarus.
Our quest to collect perfect information is as misguided as our quest to fly close to the sun. Just as gravity keeps us grounded, imperfect information keeps us yearning for more.
This is a blessing, not a curse. And we should start acting like it.
That is what I’m beginning to do.
I no longer yearn to know everything. I’m content with learning a little bit more, each day.
I hope others follow my lead.
Imperfect information might not seem ideal. But it provides us what we need to thrive.