Better Information Isn't Always Beneficial

WSJ.com - Capital :: DAVID WESSEL : "Computer and communications technology is making more and better information available ever more quickly. This is a good thing -- usually.

But there are some things we don't want to do more efficiently. Doing them better adds neither to the U.S. national psyche nor to the gross domestic product. Figuring out which is which is a growing challenge to society as technology makes gathering and analyzing information easier and cheaper.

Most of the time, speedier, cheaper information allows the economy to produce more from less, often by eliminating mistakes, cutting wasted effort and shrinking doubt. Uncertainty is costly. Information is the antidote to uncertainty, as Harvard psychologist Donald Cox put it 40 years ago.

Wal-Mart Stores Inc. keeps prices low partly because computers help avoid unnecessary inventory or empty racks in stores. Trucking companies reroute trucks equipped with global positioning systems to avoid traffic jams or skip a stop at a customer who has nothing to ship. Consumers compare prices for insurance, cars and air fares quickly and with almost no cost on the Internet. Drug researchers avoid wasted effort by sifting data to identify promising avenues for research and avoid dead ends. The lovelorn use computer dating so they don't waste time on those with whom they share no interests.

Sometimes, it's bad to make information readily available. It's stupid to help terrorists track the president's movements or help identity thieves swipe personal information. But those are easy calls.

How about the service offered by LegalMetric LLC, a start-up founded by patent lawyer Greg Upchurch? Contemplating a patent-infringement case in Delaware? For $795, Mr. Upchurch will tell you which judges rule most swiftly and which tend to favor patent holders. Making a motion for summary judgment? Mr. Upchurch can tell you how the judge has ruled on similar motions versus his peers.

These data always have been available in court files, but putting the pieces together was so expensive no one did it. Now, it's on the U.S. federal judiciary's Web site. Mr. Upchurch and his two employees download dockets, key information into a database and push a button so their software generates detailed reports.

For lawyer and client, this knowledge can be very valuable. But does it increase the chances that the judge will come to a just decision?

It is the sort of information that Nobel laureate Kenneth Arrow labeled "socially useless but privately valuable." It doesn't help the economy produce more goods or services. It creates nothing of beauty or pleasure. It simply helps someone get a bigger slice of the pie. Sure, if the product helps win cases, then both sides will buy it -- just as both sides in high-stakes product-liability cases invest in jury-selection experts and software -- and neither will have an unfair advantage. But does that make the society better off?

The same question arises in the sophisticated software used to draw the boundaries of U.S. congressional districts so precisely that Republicans and Democrats know which party is almost certain to win. This has enhanced the power of incumbency: In 2004, 401 of the 435 members of the U.S. House of Representatives sought re-election; all but seven won. It also has polarized the U.S. Congress, and made compromises scarce, because with safe districts, legislators have little reason to court the voters in the center. The advantage to individual lawmakers is clear; the value to society is not.

This issue predates computers. "The contrast between the private profitability and the social uselessness of foreknowledge may seem surprising," the late economist Jack Hirshleifer wrote in 1971. But there are instances, he argued, where "the community as a whole obtains no benefit ... from either the acquisition or the dissemination (by resale or otherwise) of private foreknowledge."

Imagine a place with uncertain weather where food is plentiful in rainy spots, but not in others. Residents, in essence, buy insurance. The lucky feed the unlucky. No one starves. Then it becomes possible to buy accurate weather forecasts. One who buys the forecast knows whether he needs insurance or not; he profits. But the total amount of food available is unchanged. And if everyone buys the weather forecast, the insurance market becomes impossible. "There is a double social loss -- the resources used unnecessarily in acquiring information and the destruction of a market for risk sharing," Mr. Arrow said when he posed this example in 1973.

Eliminating uncertainty makes insurance impossible. That's no small matter: If deciphering the human genome allows each of us to know the precise odds of contracting a dread disease, life and health insurance will be very tricky.

By reducing the cost of information so much, computers intensify all this. Thirty years ago, Mr. Arrow said the fundamental problem for companies trying to get and use information for profit was "the limitation on the ability of any individual to process information." Computers remove that limit, and force society to wrestle with practical issues that seemed only theoretical a generation ago."