Knowing and Making

From a conversation with Richard Thinks yesterday: Thanks for the link today...looking back through the emails I notice we had another conversation about transparency a few months ago. I think the idea of publishing standardised information about financial products is one of the strongest part of Osborne's proposals - but the way it's sold as enabling "price comparison websites" is a bit misleading. One of the oddities about the price comparison market (and I wrote, with a colleague, the first version of confused.com so I have a bit of inside knowledge) is that they make their profits precisely because the providers do not offer their products in a standardised way. Instead, everyone (deliberately) distinguishes their products in many different dimensions so that they cannot be directly compared. Ever tried to figure out which mobile phone deal is the cheapest? This is why those sites are so popular. If everyone did publish their terms and conditions in a common mach...

The Richard Thinks blog has an item about transparency today. It implies that The Economist has fallen for the self-serving nonsense of some anonymous traders: 'not having full-transparency allowed them to fully exploit the potential of secret trading strategies and that with full disclosure they would have little incentive to correct market inefficiencies through arbitrage.' And: 'when investors start thinking that other people are privileged to lots more relevant information and that they have an unfair disadvantage they are likely to resist activity in the market. So "[s]ymmetry, not the amount of information, matters"' How convenient for the financial institutions! The first argument is clearly fallacious. Arbitrageable market inefficiencies only arise from lack  of transparency. If the markets were transparent, the market inefficiencies would be visible and there would be an immediate and high profile incentive to correct them. And a much stronger one - ...

Thanks to Dani Rodrik for pointing out this thoughtful and original analysis on transparency by Steve Waldman. Intellectual Business  is making some proposals on the subject which go further than Steve is willing to, but he has given an excellent and quirky example of how to analyse the potential gains or losses from transparency.