Information Arbitrage
#note/develop🍃 #asymmetry
Information arbitrage exists where the least popular facts can become monetizable truths. This is typically waiting to be discovered in Signal Sources, like the newest technical papers or the oldest books.
This is the information VCs look for by becoming Information Bottlenecks.
They're looking for the small pieces of wisdom that give them an edge on the competition. Josh Wolfe calls this getting to the Edge of Information.
This is where the truths lie that most people don't know about.
Examples of Information Arbitrage
Brian Chesky studied Airbnb's new trend of boarded-up homes from the 1800s on rooming houses. The popularity of room sharing declined during the 20th century. Chesky saw a solution in a share economy using modern technology. It was all because he read an article about societal arrangements at another time.
Fritz Haber looked to solve the alchemist problem: fix nitrogen from the air to make ammonia. He saw it as an impossible problem to solve. Everyone else saw it as worthwhile to make fertilizer and bombs easier. In 1908, he discovered the process to do it, but lacked the resources to do it in a scalable way. Haber crafted a pitch to BASF, a giant chemical company, and they invested in his idea. BASF’s big budget and equipment allowed Haber to find the catalyst that produced cheap ammonia. Osmium had produced the result in March 1909. It was rare and expensive so the company made him look for alternatives. While protecting the secret, BASF bought up the world’s osmium supply. Once Fritz Haber found magnetite worked as a better compound they released the news that osmium worked in 1910. This early information gave BASF stealth knowledge and a significant lead against their competition.