Paradigm Shift

Chapter 10 discusses a new paradigm. Mainstream economy is based on the optimal allocation paradigm, by which, typically any problem is reduced to an optimization goal with given constraints. We summarize the new market theory by noting that in many contexts, allocation is a process. Any movement towards a planned goal would redefine the constraints; therefore, we cannot reduce most economic problems to static optimization exercises. Instead, we must consider a dynamic process in which both allocation and creation of resources are presented as two inseparable pillars. The new paradigm focuses on dynamics and endless evolution, taking into consideration both stabilizing and destabilizing forces.

Man and the Economy

Chapter 8 looks deeper into human needs and capabilities. We find that both are inexhaustible, while more are revealed and still more emerge. Institutional settings are important in selecting and fostering desirable traits in man, and finally it is by expanding man’s capabilities and needs that the economy grows. This chapter draws largely on inspiration from psychology, anthropology, and other humanities sciences, combined with our new market theory, to show that the theory finally finds its anchor in man. We posit that while self-interest may be the primary motive, to understand the economy we must pay attention to many secondary motives.

Evolving Economy

Chapter 9 further develops economic evolution powered by informational selection. We observe that in economic evolution, institutions play an important role, and many new issues not encountered in Natural Selection appear. Economic evolution often does not take place by pure selection (choosing or eliminating), but by building an elaborate institution. For giant institutions such as global platforms, the numbers from which to choose are probably very few, but selection is nevertheless always present, as it operates on the smaller units. An important barrier against informational selection is communication costs, which steadily trend downwards and include collecting, transmitting, ranking, sorting, filtering, and analyzing.

Personal Assistant

Chapter 3 focuses on a special type of information matchmaker, totally dedicated to consumers, that we call Personal Assistant (PA). Consistent with our fundamental asymmetry, we argue that the best information matchmakers should not be in the middle between businesses and consumers, but should be completely aligned with consumers’ interests by cutting revenues from businesses. Although such a PA does not yet exist, we predict that it will be the mainstay matchmaker in the near future. If something is so good, why is it not being utilized? Here it is argued that the initial barriers are high, and that current matchmaking models first opt for the easier way of obtaining business sponsors.

Matchmakers

Chapter 2 discusses the role of information intermediaries (information matchmakers) in helping consumers to improve their infocap. You as a consumer probably have never hired a purchase agent for help, so what intermediaries do we speak of? We show that most of your purchases are mediated by information matchmakers, which are everywhere yet are hardly noticed. For example, we do not consider Facebook as a matchmaker, yet its relatively tiny marketing role is vital to its existence. Collectively, these invisible/ubiquitous matchmakers play the largest role in consumer markets. We also show that the most effective information matchmakers are those that curate users’ own contribution to evaluate products and beyond. We also analyze revenue models and innovative ways to capture consumers’ attention and their data in order to play the matchmaker role.

Diversification

Chapter 4 asks the following question. With incessant infocap improvements, what would happen to consumer markets? We see that we can never attain perfect knowledge of the products; instead, enhanced selection power leads to product diversification. With the expanding set of consumer products, the expanding infocap, when spread over single items, would just be able to maintain the pace. The proposition that the observed product diversification is mainly due to the average infocap improvements is not widely recognized. The alternative explanation might be that increasing affluence is the cause. The detailed analysis in this chapter marshals copious circumstantial evidence in support of the new hypothesis.

From Markets to the Economy

Chapter 7 summarizes market theory and compares Natural Selection in biology with the new mechanism: informational selection. Besides many similarities, informational selection is generally weaker than Natural Selection, but it can be improved in various ways, and institutions are the most effective in helping individuals to deal with its challenges. It also has unique strength, in that agents can have the foresight to skip many steps in economic evolution. Informational selection is therefore the combined result of foresight and selection. Prior to selection, agents choose among alternatives (flexibility); post selection, they can commit to the choice even though it may not be the best.

Information Markets

Chapter 6 extends market theory to markets of information and content. Although information exchanges are not monetary, the motivations of providers and seekers are important for information intermediaries in designing better platforms. Just as with previous markets there is the similar challenge of determining the quality of information or content. This chapter shows that information consumption models can be divided into three categories: searching, farming, and feeding. Some are more efficient and some are more diversifying, and their advantages and disadvantages are discussed. Many signs show that the farming model is beginning to challenge the dominant searching model, but the concepts behind farming can also help searching.

Financial Markets

Chapter 5 extends consumer market theory to finance, to examine the similarities and particularities of both types of market. The common feature is still the role of information, and financial markets are also about how to determine a financial products’ quality. We propose the market symbiosis hypothesis that portrays the role of financial markets in the general economy. We argue that although financial transactions do not create value per se, all players in the financial markets have a value-creation role in selecting outside investment opportunities. A well-functioning financial market can enable more quality investments to be funded and can stimulate their creation.

Magic Pie

Chapter 1 lays out the basic tenants of our new market theory. Based on the recognition of widespread information asymmetry in consumer markets, consumers have, to an extent, limited understanding of almost all products. The gray-degree of this extent plays a key role. Consumers and businesses have motives and means to shift the gray-scale, and this can impact market transactions in the new supply–demand relation. The key concept is the fundamental asymmetry between consumers and businesses, that businesses are easier to adapt to consumers’ needs rather than vice versa. Hence we advocate finding ways to improve consumers’ selection power incessantly as the way of value creation.