Information Asymmetry and Decision-Making in Social Capital
Information Asymmetry and Decision-Making in Social Capital
  • Cha Joo-hak (
  • 승인 2014.07.01 01:14
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The thirteenth article of the concrete methodology for building social capital

Think of a society that is complex, in the sense that a great many of mutually interdependent individuals who make up a human society are interacting with each other in a great many ways, and the very richness of these interactions allows the society as a whole to undergo spontaneous self-organization.

People trying to satisfy their material needs unconsciously and spontaneously organize themselves into a catallaxy through myriad individual acts of buying and selling; it happens without anyone being in charge or consciously planning it. Self-organizing groups of people seeking mutual accommodation and self-consistency somehow manage to transcend themselves, acquiring collective properties such as life, thought, and purpose that they might never have possessed individually. These complex, self-organizing, adaptive systems possess a kind of dynamism that makes them qualitatively different from static objects. Complex systems are more spontaneous, more disorderly, and more alive than that. And all these complex systems have somehow acquired the ability to bring order and chaos into a special kind of balance point, called the edge of chaos in the components of a society, which is where life has enough stability to sustain itself and enough creativity to deserve the name of life. But the growing complexity of science, technology, and organization does not imply either a growing information or a growing need for information in the general population. The edge of chaos is where new information and innovative genotypes are forever nibbling away at the edges of the status quo, and where even the most entrenched old guard will eventually be overthrown.

But "Trust, Communication and Cooperation" are important at the edge of chaos, where informal unwritten guarantees are preconditions for a spontaneous self-organizing catallaxy. Where these guarantees are indefinite, a catallaxy will suffer, and Information Asymmetry will happen, which means misinforming and occurs in every communication process, though Information can resolve uncertainty.

Lexically, symmetry means correspondence in size, shape, and relative position of parts on opposite sides of a dividing line or median plane or about a center or axis, which etymologically is “alike measure.” Like the preceding, Information originates in the breaking of symmetries, and various kinds of information can be classified by its relationship to the authentication process, whether verification or falsification; information systematically prepared for authentication ("theories"), information not derived from any systematic process ("visions"), information which could not survive any reasonable authentication process ("illusions"), information which exempts itself from any authentication process ("myths"), information which has already passed authentication processes ("facts"), as well as information known to have failed - or certain to fail - such processes ("falsehoods" - both mistakes and lies).

Information asymmetry assume that at least one party to a transaction has relevant information whereas the other(s) do not, and can also be used in situations where at least one party can enforce, or effectively retaliate for breaches of, certain parts of an agreement whereas the other(s) cannot.

Furthermore, information asymmetry is relevant to decision-making in transactions where one party has more or better information than the other, which creates an imbalance of power in transactions which can sometimes cause the transactions to go awry, a kind of market failure and social collapse in the worst case. Examples of this problem are adverse selection, moral hazard, and information monopoly, which happen because of not passing the authentication process.

The authentication of information is part of a continuous process which ultimately brings information to bear on decision-making, when the society is working ideally. In real life, the process may, of course, fail to bring information to bear, when accurate information is available somewhere in the society. What matters, then, is the information actually used at the decision-making point, not the information in process of development or authentication, nor even the information clearly apparent to particular individuals or organizations somewhere in the society.

And while decisions may be thought of as made by specific individuals at specific points in space and time, the decision-making process is more usually structured so that various combinations of individuals repeatedly and habitually make certain classes of decisions, so that they form continuously functioning decision-making units, which may range from a married couple to a police department to a national government. A single individual may also form a decision-making unit for some purposes, or he may be part of several decision-making units simultaneously, and the set of such institutions may change over time.

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