Institute for Financial Transparency

Shining a light on the opaque corners of finance


Can 1,000 Economics/Finance PhDs learn from a non-PhD?

It has become apparent Economics and Finance PhDs are the walking embodiment of Upton Sinclair’s observation:

It is difficult to get a man to understand something, when his salary depends on his not understanding it.

Since the Great Financial Crisis started ten years ago, I have tried to get these PhDs to understand transparency is the fundamental building block on which their professions are based.

My explanation involves recreating the financial markets using a clear plastic/brown paper bag model and showing that transactions occur in all four quadrants of the following Information Matrix:

Does Buyer Know What They Are Buying? No  

1: Lemon Problem



2: Blind Betting



3: Perfect Information


4: Antique Dealer Problem
Yes No
                     Does Seller Know What They Are Selling?

Either my explanation is too confusing for these PhDs or they are simply incapable of learning anything from a non-PhD particularly if it wasn’t mentioned in Econ 101.

Here is a classic explanation for why I have not had more impact:

Scarcity is the foundational assumption in establishment economics. Chapter 1 Page 1 Sentence 1

Scarcity is not the foundational assumption in establishment economics.  Transparency is.  Without transparency, buyers and sellers don’t have the information they need to know they are dealing with scarcity.

The tweet does however confirm my 2015 analysis of the best-selling introductory economic textbooks.  All of these textbooks begin by assuming the existence of transparency too.  Yes, later on these textbooks do discuss the problems of information asymmetry in quadrants 1 and 4 of the Information Matrix, but they all leave out any discussion of quadrant 2.

The failure to discuss quadrant 2 and the fact buyers and sellers of securities engage in blindly betting means unless they are willing to listen to a non-Phd like myself these PhDs are never exposed to nor will they ever understand the role of opacity in a financial crisis.