Information Asymmetry is Power

In a pool of talented people, what contributes more to success: who you know, what you do, or what you know?

It helps to know people, but people are pretty accessible if you’re worth knowing - and if you’re not, access does no good. Action matters, but not action for its own sake. Hard work is table stakes. What makes the difference is the choices we make about what actions to take, and that’s largely a matter of information. In a pool of talented people, the primary differentiator is knowledge.

So when they say “it’s not about who you know, it’s about what you know”, they’re right. But the “what you know” isn’t academic knowledge or even work skills. There’s little alpha left in such common knowledge. The information that gets you ahead is little-known. It’s often timely, nitty gritty, tactical, or insider information. What information exactly do I mean, and where can it be found? First, I’ll review types of information.

Taxonomy of information

I think there are two kinds of information advantages: your stock of valuable knowledge and your access to flows of timely information.

Your stock of knowledge, your information assets, pay dividends. The value of information tends to decay over time as it becomes outdated or more widely known. There are different types of information assets - they’re useful in different contexts and have different value-decay functions.

Of all information assets, domain expertise is the most accessible. This is a body of knowledge, built through study and experience, concerning the fine details and practice of some domain. I would classify professions, trades, and academic fields under “domain expertise”. The value of this knowledge is the ratio of people who require the expertise to people who possess it. Domain expertise also serves as a foundation for further specialization. A lawyer graduates knowing the rules of civil procedure, then gets experience in some specialty, and over time learns more sub-specialties and experiences the increasingly arcane variations and wrinkles that can exist in that type of work. The barrier to entry on the foundational knowledge is admission to an educational institution, and the barrier to specialization is experience and mentorship.

Some knowledge is highly intangible, such as mental models, mindsets, and intellectual concepts and theories. I believe this knowledge is highly impactful. For example in crypto the success of a project often depends on its philosophical grounding. Or maybe you know someone with a suboptimal “mindset”, as hard to explain as that is. This kind of knowledge can be hard to transfer because often the one who possesses it hardly notices it’s there. It’s best transmitted from one person to another over an extended period of working together. Some knowledge is logically obvious and only becomes useful once you accept it emotionally, which only comes from experience and maturity.

In writing, the deepest ideas must be communicated through novels, because experience is the best teacher. Domain expertise requires the textbook writing style. Unusual ideas often require unusual writing styles to make readers think in a new way. Business and self-help books often convey simple, practical information and thus can be written in a plain style.

The value of tactical information decays most quickly. A tactic is a low-level specific pattern of actions that produces a desired outcome. Tactics can be easily copied, so they more quickly get saturated and lose their edge. Highly SEO and digital marketing are fields that are heavily based on an arms race of tactics. But tactical information also includes any practical, “on the ground” piece of info - market information, strategy insights, baseball scouting reports, etc.

Accessing flows of timely information is what it means to “keep your ear to the ground”. This is very valuable. It’s difficult to create or predict trends - much more effective to quickly act on trends just as they begin.

Personal networks generate information advantages

The most valuable information is not published online. For one thing, once information is widely published it loses its value. But for the most part, valuable information usually just isn’t the kind of thing you’d write a blog post about. The valuable information I’m thinking of is highly contextual: a house about to be listed for sale, a problem faced by the xyz team at abc company, a recent API change to an obscure but economically-critical system.

The only way to have access to this kind of information is to know someone who knows it. You have to be “close to the source”, where decisions are made, actions are taken, and information is collected. It’s true that there’s plenty of valuable information published online, but mostly in lesser-known blogs - and these too are situated within social networks. (You can estimate the proximity of different networks by how long it takes for information to travel from one to another).

For a concrete example, think of the various hurdles you jump in order to secure a comfortable life: high school, college admissions, college, job recruiting. Each of these is gameable, if you know the game. Some people excel at these games. In high school they were doing the right extracurriculars before that was on most kids’ radar. In college they had a precocious understanding of the landscape - the class and professor reputations, the important clubs and programs. In job recruiting, they knew which job titles to go for, what companies to apply to, and what questions will be asked in interviews.

This information is mostly publicly available. College counselors and academic advisors try to help. But in practice, the savvy people generally learn from older siblings, teammates, and clubmates. Many Greek organizations keep banks of old notes, flashcards, and tests. I think that the advantages fraternities give in job placement isn’t nepotism, it’s due to the information that recently graduated brothers can share about how their company’s recruiting process works.

In-network information is valuable outside of gameable domains. Two friends shared with me a memo they wrote as they considered what company to start. I was struck by the fact that their best ideas were opportunities that I had no visibility on: a problem faced by a retail fraud ops team (that their friend works on), a market opportunity adjacent to one addressed by a pre-seed company that pitched a VC firm (that their friend works at), and so on.

Social networks are most important for accessing tactical and timely information, but sometimes they guard information assets.

Pythagoras formed a cult around his secret teachings. Companies keep secret knowledge, including venture firms. These secrets seeps out along the lines of the social networks that surround it.

Valuable information of various kinds, mostly shared in personal networks, multiplies hard work. It’s not who you know, it’s what you learn from who you know.

Knowledge is power

The power of knowledge is very real. Think of the dollar value of a zero-day exploit or an email list of high net worth investors. Think of the tens of billions made over the years by Renaissance Technologies because of their secret investing insights. Simple, inert pieces of information can be very valuable.

Information advantages have always been one of the main sources of power, including state power. One historian’s theory is that the first states were palace regimes that controlled centralized irrigation systems, the critical infrastructure supporting the agrarian economy. (The term to search is “hydraulic despotism”). The basis of this control was information advantages: historical meteorological and astronomical records, technical expertise concerning canal and dike construction, a system of scouts along the water source. This knowledge was kept secret by a priestly class ensconced in a ziggurat temple complex (where the records were kept), and the pharaoh’s power to bring good harvests was falsely presented as the product of contact with the divine.

Today, the logistical complexity of production is much greater, and there are many more types of critical infrastructure. Think of the stack of companies and systems across all the verticals of the US financial system, telecommunications systems, or energy supply chain. How these things works isn’t secret, but it’s hardly accessible either. You have to know where to find the dry PDFs that the info is written down in, and so many details can only be filled in from experience. To greatly impact the world, you’ll need to know the fine logistical details of the systems you wish to impact.

The regulatory state itself is a massive, complex system, and much of it operates informally. That’s why you have to hire former regulators to help you deal with the regulatory state. It’s not tacit corruption. Only people who have seen inside the system know how it works, and that knowledge is very valuable to people on the outside.

In stories of people who have gained great power, something you will notice very often is that they are described as having a vast and detailed technical knowledge of the office they held and the systems around it. (I’m thinking of Robert Moses, LBJ, and Joseph Stalin). Hannah Arendt mentioned this, that “knowledge of the labyrinth of transmission belts equals supreme power”.

I’d rather have powerful knowledge than powerful friends. Information is the only thing that you can completely own, and that can’t be taken from you as long as you live.