A small thought that occurred to me while reading this post:
In fields where most people do a lot of independent diligence, you should defer to other evaluators more. (Maybe EA grantmaking is an example of this.)
In fields where people mostly defer to each other, you’re better off doing more diligence. (My impression is VC is like this—most VCs don’t want to fund your startup unless you already got funding from someone else.)
And presumably there’s some equilibrium where everyone defers N% of their decisionmaking and does (100-N)% independent diligence, and you should also defer N%.
My guess is that it’s this paper. The abstract/introduction:
If competitive equilibrium is defined as a situation in which prices are such that all arbitrage profits are eliminated, is it possible that a competitive economy always be in equilibrium? Clearly not, for then those who arbitrage make no (private) return from their (privately) costly activity. Hence the assumptions that all markets, including that for information, are always in equilibrium and always perfectly arbitraged are inconsistent when arbitrage is costly.
We propose here a model in which there is an equilibrium degree of disequilibrium: prices reflect the information of informed individuals (arbitrageurs) but only partially, so that those who expend resources to obtain information do receive compensation. How informative the price system is depends on the number of individuals who are informed; but the number of individuals who are informed is itself an endogenous variable in the model.
The model is the simplest one in which prices perform a well-articulated role in conveying information from the informed to the uninformed. When informed individuals observe information that the return to a security is going to be high, they bid its price up, and conversely when they observe information that the return is going to be low. Thus the price system makes publicly available the information obtained by informed individuals to the uniformed [sic]. In general, however, it does this imperfectly; this is perhaps lucky, for were it to do it perfectly, an equilibrium would not exist.
A small thought that occurred to me while reading this post:
In fields where most people do a lot of independent diligence, you should defer to other evaluators more. (Maybe EA grantmaking is an example of this.)
In fields where people mostly defer to each other, you’re better off doing more diligence. (My impression is VC is like this—most VCs don’t want to fund your startup unless you already got funding from someone else.)
And presumably there’s some equilibrium where everyone defers N% of their decisionmaking and does (100-N)% independent diligence, and you should also defer N%.
First two points sounds like a valid application of Grossman-Stiglitz 1980
I’m not familiar with that paper, can you elaborate? :)
My guess is that it’s this paper. The abstract/introduction: