Asymmetry Is the Root of All Value
It’s not hard these days to find vignettes like this one (starting at minute 1:45) that describe a microeconomic chain of events that give you a glimpse into the recessionary dynamic. I think it’s a good starting point to explain my personal theory of why asymmetry is the root of all value (economic and otherwise).
The lime green coat vignette shows how value gets destroyed, so you have to invert the chain of reasoning, and recognize that when you do so, there is value being created all along the chain. But what is really going on at each link in the chain is a simple monetary transaction. And all monetary transactions — whether they involve cash directly, or credit, equity, barter, etc — are a form of cooperation. In particular, they happen due to the so-called Law of Comparative Advantage (LoCA). Simply put, this “law” is the inverse of the Prisoner’s Dilemma (PD).* In PD situations, two agents are worse off by following their self interest and not cooperating. In LoCA situations it’s just the opposite: its in the agents’ self interest to cooperate, and by doing so they end up better off than by going it alone.
If you think about it, no monetary transactions ever take place unless it’s a LoCA situation. You walk around all day long not making purchases because you are better off having the money (and time) it would cost you. But every once in a while the situation is right (or you seek out the situation) and you’d prefer a cheeseburger to the $0.99 cents in your pocket. The burger joint prefers the money to the burger, so it all works out great and everyone is better off for having done the transaction.
Now, what is special about LoCA situations such that the magic of cooperation can make everyone better off? It’s simple: asymmetry. You and the burger joint have asymmetries not only in your production capacity — the burger joint can make burgers much cheaper and faster than you can — but also in your consumption profiles: the burger joint doesn’t consume any burgers, plus you each have different utility curves for money. Compare this to a person you meet outside the burger joint who is identical to you in terms of burger making ability, hunger, cash in pocket and love of money. You two have no reason to cooperate on getting burgers into your bellies, so you both just end up going inside and ordering for yourselves and paying with your own hard-earned cash.
You might be thinking to yourself at this point that PD’s are also asymmetric situations and they decidedly don’t lead to cooperation and value creation, so how can I claim that value is derived from asymmetry? The answer is that asymmetry leads to change in value, and the direction of change is determined by the specifics of that asymmetry; LoCA situations lead to creation of value and PD situations lead to destruction of value.** Not all asymmetrical situations fall into either the LoCA or PD category (at least I don’t think so), but these are the ones that are most instructive .
As for non-economic value, if you don’t believe the above argument you can stop reading here because my argument is more philosophical and even more by analogy. But assuming you are with me so far, check out Nobel laureate P.W.Anderson’s famous Science article More is different in which symmetry breaking is the key to his argument. Also, check out Parrondo’s Paradox which can be used to describe all sorts of value creation from different realms, and “[i]n its most general form… can occur where there is a nonlinear interaction of random behavior with an asymmetry.”
* which itself generalizes to the well-known economic problem of the Tragedy of the Commons.
** At least for the “prisoners.” One can see that the “police” gain value, and it’s an open question in my mind whether there is conservation of total value if you look at the system as a whole. If anyone has a proof of such a concept, or can show that total value goes down, would love to see it.