Factors Affecting Value of Information

Profit margin from trading activities, regardless of commodity is largly affected by the information available on that commodity. Basically a merchant, a businessman who trades in commodities that he did not produce himself, in order to earn a profit, earn from information they have that put them in a competitive edge against their competitor. The more people know the information they have the less profit they are going to make.

Photograph courtesy of Daniel Bersak

Let's look at some example!

Example 1: The Stock Trader

A stock trader or a stock investor is an individual or firm who buys and sells stocks or bonds (and possibly other financial assets) in the financial markets.

- Wikipedia

Every piece of information would affect the stock price, by different degree, depending on the value of information. The stock trader with the more valuable information can gain more from the market. Say a stock trader found out a small player in the NASDAQ are going to be acquire by tech giant, which in usual case the target company will have an increase in share price. IF he manage to find out about that without much people knowing about the acquisition, and he manage to do it without crossing the violating the insider trading provision, he can easily profit from the market. Of course that is an extreme analogy, by providing the obvious example, however, if you take a close look. That is how the stock brokerage firm or even financial news publisher (online or offline) make money, day in day and they out, they dig (or some create) news that will affect the market and sell them for a value.

Example 2: Merchant

A merchant is a businessman who trades in commodities that he did not produce himself, in order to earn a profit.

- Wikipedia

Trust me, which ever industry you are in, information is king, when it comes to increasing your profit margin! That's the key factor that affect your bargaining power, of course sometimes with a very good bluff. Being a retailer, an agent or owner of a trading company, one benefit from their customer because they hold vital information of where to source for certain items that is valuable to their customer. Essentially, ceteris paribus, a retailer with many supplier are able to purchase an item with cheaper price compare to their competitor, which lead to higher profit margin. With the same mechanism, a trader who can source for something customers perceive to be valuable will gain an competitive edge, or in extreme cases monopoly the market.

Why do you think fortune telling is such a compelling subject? The elimination of uncertainty in a decision making process is very valuable to decision makers. Come take wild guess of what's the main factor in elimination of uncertainty. Yes, it's information! With information, one can make better decision, avoid wastage and increase their profit margin. Now that we know the power of information, so what affect the value of information? This will not be a complete list, because the variable in affecting the value of information is just too much!

Key Factor Affecting Value of Information (CARE)

Creditability

The source of information is a key factor in affecting the value of information, logically an information from a credible source will hold more value, compared to hearsay or myth passed around. However the factor affecting the credibility of the source of information is a tough call, for more information on creditability judgment check out Information Triage: Factors Affecting Credibility Judgments of Web-Based Resources by Paul Aumer-Ryan. Under logical circumstance, the information that you obtain from your professor will be more credible and more value able, because of their experience and level of respect given. On the other hand a best selling author will gain their credibility backed by the sales figure of their books, and in some cases their experience in the subject that they are writing about. For example, Paris Hilton writing about producing home made porn. A piece of information that come from a credible source will usually cost more for you to obtain the information. The main reason being the certainty the information holds, the more uncertainty your information help you to clear, the more valuable the information is.

Availability

A piece of information lose information as it passes on, with more people having that information, it loses its value. Different people have different level of access to information, the people who hold the vital information will have the choice of passing on the information or not, and also the choice of passing it to who and the volume of audience he's passing to. With that being said, basically any information that you can easily available on the internet are not as valuable as information shared among a small group of people. Which is why websites fight with each other to get higher SERP ranking, and they can be sure that if their information are valuable, the value will diminish very quickly, because they decide to share the information available with a large, uncontrollable group of people. For example if you are the only one with the leaked information of iPhone4 prototype and you share it on your blog, you will be getting insane traffic if you know how to promote your blog. This is also one of the reason why one of the most important SEO advice is to always generate contents that is valuable to your audience.

Relativity

Anything that is not relevant will hold small or immaterial value to the target audience, sometimes even negative value. Telling the wheelchair bound group of people how to play football (or soccer) will be deem valueless and an insult to them and cause a negative effect. The larger the impact of the information the more valuable the information will be. Say the sex tape of some beggar in a dark alley will affect no one, except maybe the audience getting disturbed by the scene, hence that short clip will barely have any value. If the hero or heroine of the act are someone of respectable status, it will tarnish their career, marriage and personal image that they build. The information will be invaluable to them, their competitor and someone who are connected to the main cast, to the rest of the world, it is but another sex act, easily downloadable from the internet. If the main cast involves a celebrity, it might be of value to more people because of curiosity and the relativity of the movie to the person who want to obtain the information. The possessor of the information can also sell the information back to the originator, asking for a fee of their non-disclosure!

Efficiency

Taking the iPhone4 example from availability of information, someone who use that information more effectively can easily gain more from the information! Method of information distribution is an important factor in determining the efficiency of the information use. Some would distribute the information to a niche group of people, charging high premium, because they know that the information is valuable to the people their customer. On the other hand, some will distribute the information to a large group of people, earning a small price for the information. For example a blog with high readership can gain from ads if they release the leaked information because of the ads revenue generated from their traffic; alternatively they can sell the information to the party who are interested and willing to pay a small fortune for the information.

Like I've said earlier, the list would be endless! There are simply too much factor that will affect the value of information, however if you smartly manipulate the CARE key factors, you can increase the value of information that you hold! Just pay close attention to decision you make in using the information! My sincere advice is to stop hurting the market by providing information that does not benefit you. Consumers now are wise in collecting information not to mention that they are getting better in bluffing! Stand firm on your ground if you think that the information that you are trading for have more value that the customer is offering! If you think that your competitor will gladly cut your profit for you if you don't cut them yourself, you are just not being innovative and constantly relying on old information to sustain your business.

P/S: In very rare occasion that I actually come up with something educational, and original! I have no intention of making this a serious topic, but it's hard to make a point across in a comical tone. Hats off to the stand up comedian that manage to incorporate serious matter in their number. Oh I've also been writing while consuming my beers so take it with a pinch of salt, and blame me not for any screw up!

PP/S: If you bother to read until here, why not leave a comment to let me know what you think? Thanks!