Jonathan Bartlett explains the relationship between information and prosperity as set out in Eric Holloway’s new paper: our ability to “read from Plato’s Library” of new ideas provides us with an ever-growing supply of
side information that powers the economy:
Information theorists often use analogies from making bets to understand the impact of information on economics. Perhaps surprisingly, there are many structural similarities between betting at a casino and betting on a business (by starting or investing in it). Both start with outlays of capital which may decline to zero, be partially returned to you, or (as you hope) returned as a multiple. The difference is that, at the casino, the casino sets the odds for a payout. In business, the odds are set by external factors. But why is it that so many people can make money in business but few if any make money gambling at a casino?
The difference is that, in business, we can introduce “side information” to the problem of increasing our capital. Side information is information that we know but it isn’t simply dictated to us by the environment. Before the iPhone was invented, there was no known price that an iPhone would sell for. Apple CEO Steve Jobs had to draw on his own side information about what users wanted, needed, and would pay for, in order to make the bet that the iPhone would work out. It wasn’t a guarantee and Apple could have lost their investment. As it happened, the side information that Jobs brought to the table allowed Apple to not only make money for itself by selling phones but create opportunities for users to make money, thus adding to overall wealth. This was all done by using side information on what users wanted and needed in a phone.
This phenomenon of side information has been described primarily by two economists— George Gilder and Peter Thiel . More.
Jonathan Bartlett is the Research and Education Director of the Blyth Institute.
Also by Jonathan Bartlett: Google Search: Its secret of success revealed: The secret is not the Big Data pile. No, Google found a way to harness YOUR wants and needs
Be Choosy About What You Automate: Having automated many processes, I can assure you that that is the First Rule of Automation