Information asymmetry is when one party in a transaction has more information than the other party. This can happen for a variety of reasons, but it often favors the person or institution with more information. There is a great deal of information asymmetry in the art market, and its impact is profound: decreased trust, valuation disparities, and rampant inequality.
The art market is particularly prone to information asymmetry because it is complex and opaque. Many art buyers don’t know enough about the art world to make informed decisions. Asymmetry also means that artists often do not have access to the same information as dealers and collectors. One result: they may not be able to get a fair price for their work. This imbalance makes it difficult for artists to understand the art market and how it works. This can lead to them to fall prey to bad actors (don’t believe there are bad actors in the art market? Do a quick search for art fraud and you’ll quickly change your mind. Here’s one recent example. ) Ultimately, this hurts artists and limits their ability to make a living from their art. It also hurts buyers who wish to support the arts, leading them to view industry professionals as adversaries rather than good-faith parties in a given exchange. Addressing information asymmetry is essential if we want to create a more equitable art market, one where all involved achieve the best possible outcomes.
Information asymmetry can be mitigated in a number of ways. One is through increased transparency, which allows all parties to have access to the same information. (I’ve already written some about how increased transparency can help address asymmetry.) Another is increasing the level of education and awareness among art buyers. This can be done through initiatives like ArtRank, which provide buyers with objective information about artists and the art market. (Programs that rely on data and algorithms should take note here: transparent efforts will always outperform opaque ones on a level playing field, so methodology should be divulged and vetted.) Finally, we need better regulation of the art market to weed out bad actors and increase overall security.
Regulation of the art market might entail stricter licensing requirements for dealers and galleries, as well as more thorough enforcement efforts by art market professionals. In many cases the problems of asymmetry may not stem from dishonesty. In some, it may simply be a matter of ignorance, a lack of professional experience and knowledge. Requiring a certain level of competence (via certification or something of the sort) may help solve for the most egregious errors in the market. (I’ve already written some about problems relating to a lack of qualifications in art market professionals.) But top down regulation, although relatively easy to imagine, may not be the best answer here, especially in an arena as complex as the art market. Regulation can easily be hijacked by the well-connected and used to subvert open and honest exchange in favor of crony-type commercialism. Instead, initiatives that combine reputation metrics alongside immutable data—say, for instance, by employing blockchain technology—may help identify the worst offenders and help remove them from the market. Such initiatives could be instituted by a broad coalition of industry members, and as its utility is proven out, the initiative will spontaneously grow to cover the industry as a whole (i.e., network effects will take hold.) Self-regulation efforts such as these will naturally be more equitable on a broader scale.
Blockchain technology is likely the great leveler here. It would increase transparency, increase efficiency, and increase trust. Indeed, many systems built using blockchain technology are called “trustless” because you don’t need to trust associates to ensure you get the outcome you agreed upon—smart contracts within the systems are enforced by design and cannot be finessed to profit one participant over the other after the fact. The verifiable, immutable design of the blockchain would also make it impossible for double-dealing (Like in this case), or missing payments (Like in this case.) Smart contracts—which are computer protocols that facilitate, verify, or enforce the negotiation or performance of a contract—could play an important role in mitigating information asymmetry in the art world. They could do this by automating trust-building measures and escrow services so that buyers and sellers need not worry about deals.
The idea of regulation or enforcement initiatives should not be seen as a negative or us-versus-them proposition: everybody wants to improve the art industry and ensure that everyone feels respected and valued in their transactions. With that in mind, let’s all strive to work together to make the market more equitable. Only then can we create a truly thriving art economy. Asymmetry exists in many different walks of life. It needn’t be here.
Let’s build something better. Together.
Support Arts Coverage!
If you enjoyed this piece, and would like to ensure the work continues, please consider supporting it.
Your contribution provides vital assistance and serves to demonstrate your appreciation for the work artists and creative people do to keep our communities vibrant and full of imaginative light.
If you enjoyed this arts coverage, donate below to keep the content coming! Learn more about becoming a supporter.
Become a Patron Without Spending a Dime. Learn More Here.
Nick Thornburg is a multidisciplinary artist and writer. Subscribe to his mailing list to keep up-to-date with upcoming features and other news.
Stay Creative.