The Value of Information
my thoughts about the book by Robert Laughlin THE CRIME of REASON and the closing of the scientific mind
see also The Crime of Reason: and the Closing of the Scientific Mind Reviewed by Edward Gerjuoy
chapter 1 - The end of Innocence
The paradox is clearly expressed that scientists want the knowledge/information to be free, while business people want the information to be expensive (if we put it into the words of Seth Levine, see above). The sequestration of knowledge is intentionally created rather than being due to the difficulty of understanding by the layperson. The friction and paradox is extremely painful in the Information Age, when we live and value bits more and more rather than atoms.
Thus at the dawn of the Information Age we find ourselves dealing with the bizarre concept of the
“crime of reason,” the unsocial nature or outright illegality of understanding certain things
Patents are intended to introduce rules, but the money/finance/business frustrate the rules as they want to monetise the information.
chapter 4 - Game of Chance
This chapter is particularly interesting as it makes a striking contrast between scientists and so-called businessman. Laughlin, being a physicist, sees much more VALUE being created by scientists, not by coniving business people. Laughlin does not see optionality and randomness as a part of creative process. It appears that Laughlin does not know economics as deeply as physics. In particular, the collision between economics/markets and science/information is a very important topic in the economics foundations.
The quality and the asymmetry of information is critical to the incentives of the agents. The markets have to discover the information as a part of their mechanism, which is a proven "theorem" by Stiglitz and Grossman.. Laughlin formulates it here as an emotional argument and as a moral problem
An important implication of this behavior is that universal access to knowledge is fundamentally incompatible with market economics
what is misleading and even dangerous, he goes on blaming
The misconception they confront is that economic life is not about logic at all but about game playing and deception—the exact opposite of science.
The fundamental concept of Knightian uncertainty is probably something Laughlin either does not know or disagree.
The analogy between business and poker is very relevant, but Laughlin does not see the creative human forces, constructive gaming, and alignment of cooperation-competition in the game of poker. See, for instance, Aaron Brown These forces of collaboration and competition are natural (for humans?!) under capitalism.
Morality is again fully on the side of science and considered via the eyes of Thomas Jefferson. Yet the morality is not an axiom of science, but rather social human concept, which is shared by scientists and enterpreneurs alike. Perhaps, the morality is simpler in the science context, and the greed does not tempt scientists as much in their main activity if their daily activity is still not applying and strugling for the funding/money.
Basically, Laughlin appreciates the value of science and much less (if at all?) value of business cooperation and competition. Yet the life, as WE know it, is full of different people, different incentives, and different value systems/beliefs.
The cost of the information creates scarcity and the scarcity creates value
Ironically, R&D in quant finance is a losing proposition in both success and failure; the weaker the finding, the less you can do with it, and the stronger the finding, the quicker someone else is right behind you doing it.
So the arbitrage is in the middle, just enough alpha!
MT - Maybe... depends on the implementation difficulty. Paradoxically, R&D effort is complementary to good information, just today’s discussion twitter.com/mturlakov/stat…
totally with you on "implementation difficulty"... great addendum, and the ultimate slowdown to arb decay.