I have written before on a principal called dollar-power, which specifically refers to a political candidate’s ability to garner votes with varying cost, but the concept has broader implications for social capital and market decision making as a whole. In this article I want to focus on the relationship between truth and dollar power.
An inducted principal from my time in politics, communications, and marketing is that it is easier to sell people on the truth, sometimes. I have expanded this principal in to four actionable and testable principals with varying levels of rigor.
- Truth maximizes dollar-power.
- This is deliberately ambiguous as it occurs on both the supply and demand sides, with respect to individuals, groups, and the truth itself conceived as an actor which necessarily emerges as a market power over time.
- This can also be phrased as, “truth is efficient,” which is essentially a better way of phrasing the market assumption of perfect information. We shouldn’t actually assume perfect information because that doesn’t exist in market of people, but we can state that with better information in a market, the market tends to become more efficient.
- Even this statement is complex, though, because sometimes additional information doesn’t lead to better market choices.
- In one case, more information of low quality, or additional misinformation, will clearly lead to worse results. In another case, more information which is not related to the transaction at hand will not lead to a worse result, but neither will it lead to a better result.
- This is why better information does not simply mean more information. This is also why we say the market tends to become more efficient, rather than the market become more efficient.
- Dollar power is maximized when the information supplied is true and the consumer of truth recognizes it as such. It is secondly great when information supplied is false but the consumer perceives it as true. It is thirdly great when the information is true but the consumer perceives it as false, and it is least great when the information is false and the supplier recognizes it as such.
- Dollar power = f(a,t,p), where t is the truth value of the supplied information, p is the perceived truth value of the supplied information, and a is all other factors. t and p are measured from 0 to 1 where 0 is perfectly inefficient and 1 is perfectly efficient.
- Efficient truth, or perfect truth, is more than simply a binary consideration as true or false. Two statements may be true, but one may do a better job of maximizing the transaction-necessary information. p measures the perception of that truth. p means the agent considers the information perfectly true. In short, if t = 1 and p = 1 then we validate the economic assumption of perfect information.
- Consider point 3 again. In the real world these two factors are endogenous. In the short run p dominates while in the long run t dominates. A model which captures this fact and then validates through experimentation or other means to a decent functional form of the interaction of a, t, and p, would be the most rigorous model, but I don’t have such a model right now.
- I would also point out that the thing usually referred to as intelligence could very well be measured as the sensitivity of t and p with respect to some intelligent entity, whether that be an individual or a group-intelligence measurement. To put the idea into plain English, we might consider intelligence to be, or to be well represented by the measurement of, an agent’s ability to recognize, adopt, and maintain true information as their own perception.
Interestingly, that definition of intelligence would combine with the logic of the human condition to formally show that the market assumption of perfect information is necessarily invalid. Now, that doesn’t mean markets don’t work. It means markets work for yet poorly known reasons. I have both written and done videos on my view of the logic of the human condition.
If truth is so efficient then why do people lie for strategic advantage? As noted in point 4 this is because objective truth efficiency dominates in the long run while subjective truth values, or opinions, dominate in the short run. I hope you enjoyed the rabbit trails as well.