As I’ve said ad nauseam on this blog and elsewhere, and quoting John Kay, the way we work out what’s good and what’s not is not by assessing it individually but by reputation. We know that Apple makes insanely great products not because we get our screwdriver out and check its specs, but because it has a reputation for doing so (and Steve Jobs has done an amazing job of making us all a little crazy about Apple, just like him).
So it’s odd that so much of our regulation to improve information flows in markets focuses on disclosure (showing us the back end of the computer) rather than on improving the way in which reputations are formed. The web is doing a marvellous job here of course and this post was provoked by the launch of a new site which is dedicated to indexing ratings websites – and perhaps rating them!
Now if we can get the itchy hands of regulators thinking less about how they can mandate disclosure which is then routinely ignored, and thinking instead about how they can improve the accuracy of reputations in the marketplace, for instance how they might be able to support ratings websites in various ways, that might help them do their job better (they have lots of challenges from defamation to verifying the identity of people making claims about others) we might be able to make more progress than we have with ‘disclosure’ regulation.
Hmmm…Isn’t part of the rationales for disclosure that it can help protect people from, amongst other things, reputations?
Ie someone might think that product X is marketed by a bank, it must be safe – chances are the PDS won’t help them, but it does give them some information on which to make a more rational assessment, if they read it.
You’ve talked about information policies quite a bit and you have convince me they have alot of potential. But you are also skeptical of government’s ability to deliver them. That seems to leave us in a position where there is no policy to implement and
Can you give us a suggestion for a government policy which you feel will improve market information even when implemented by a real world government? You may have covered this before and if so I apologize for the request, but I have read a few of your posts on this idea and while the theory seems good it does not seem to translate into practical policies a government could implement. I am especially curious as to whether there are any “low hanging fruit” policies in this area.
When buying second hand, letting those with money to make judgements
I can’t afford to make error on, reputation is valid.
I researched for some years on computers and the pros and cons of what I neede a computer for.
Apple came up trumps, the interface was easier than windows and I didn’t want to be one of the mob so encouraging pranksters to spoil my fun.
The thing not accounted for was the marketing system of dribbling improvments.
I bought at first, new! never again it was an expensive lesson.
Not needing stuff”leading edge” just reliable and easy has been my guide since that first expensive mistake.
Still with Apple because new learning of systems is not my go, I am happy to operate a ten year old machine at 500 mb, at least ten year old and it cost peanuts on ebay.
New is for nerds, not me. If deciding on reputation is your only choice I fear for you.
fluff4
SWIO,
A lot of people get confused about what I’m arguing, I guess not surprisingly since I’m arguing something that’s a bit new and sometimes quite subtle. In the area of the workplace I’ve argued (pdf) for more prominent publication of risk rated workers compensation premiums as a proxy for the safety of workplaces (and a good deal else besides – like quality of management and relationships within the workplace). I’ve also argued for something which acquired the breezy propaganda name of Windows on Workplaces at the Summit. (Whoever you are who came up with it late Saturday night 19th April, thanks. Every bit helps.)
Now WOW is not a ‘policy’ in the typical sense of that word. It’s not something that Kevin Rudd or Julia G can command – or at least if they do they’ll stuff it up. But if I’m right in this article that much of the market failure is the lack of a standard, then the government will be the actor with the most capacity to get one to evolve as outlined in that piece. If suasion doesn’t work, the public sector can develop and then report to a standard.
The fact that it isn’t some subsidy or regulation doesn’t mean it isn’t government action. In the area of health I’ve proposed that the Gruen Tender would be an excellent vehicle for improving the quality of reputations – that is how much accurate information they convey as well as allocating work according to reputation. I’ve proposed that if we regulate investment advisors as heavily as we do, we should surely try to ensure that that regulation brings forth credible information about their performance in the past as measured by the performance of a sample portfolio or portfolios.
Etc Etc.
These are policies, but they’re a suite of policies, and some of them involve the governments soft power (and could be pursued by others). In this sense, government action is like it sometimes has been in development – at least in this country – which is to say that government action hastens something that would have occurred anyway, but possibly a lot later than it would have without govt leading the way and orchestrating things. But to repeat, most of the leadership should be by way of trailing things within government systems, suasion to try to bring about standards etc.
It’s OK if this isn’t called a ‘policy’. But Australia had one of the best AIDS policies in the world. It was called a ‘strategy’. It was low cost (ultimately negative cost), many pronged, and unafraid of small scale ‘low regrets’ experiments, and that’s what a national information strategy should be.