Knowledge sets you free, but it takes away not knowing. Both halves are true and they are measured in different currencies: freedom in what you can do, not knowing in how you feel. This chapter puts the two on one page: where the sentences come from, a small sum that says when knowing is worth its price, what people actually choose when they may choose not to know, what knowing does to the knower, what a market does when one side knows more than the other, and what it costs.
The thought has two parent sentences that contradict each other. One is in the Gospel of John: the truth will set you free (8:32). The other stands a few books earlier, in Ecclesiastes: in much wisdom is much grief, and he that increaseth knowledge increaseth sorrow (1:18). Everything since has taken one side or the other. The line below sorts the best-known voices by year and by side; the two columns are the two halves of the sentence in the title.
Left, the voices for which knowing frees; right, those for which it takes. On a phone the two columns become one, each entry marked by its side.
Knowing good and evil costs the garden. The oldest version of the sentence, told as a story.
Fire is brought to men and punished; the jar lets everything out except hope. Hope stays where knowledge is incomplete.
Whoever increases knowledge increases sorrow.
The truth will set you free.
Knowledge itself is power: whoever understands a thing no longer depends on those who explain it.
Where ignorance is bliss, it is folly to be wise. The short form quoted ever since.
Dare to know. Immaturity is self-inflicted, and leaving it is the definition of enlightenment.
We have art so that we shall not perish of the truth.
More information never makes a rational decision maker worse off, because it can always be ignored. The theorem behind the freeing half.
People do not only decide, they wait and anticipate. Information that changes no decision still changes the waiting.
The curse of knowledge: once you know, you cannot imagine not knowing, and you overrate what others know.
Article 10: the wish of a person not to be informed about their own health shall be observed. The right not to know, in law.
The least competent do not know how little they know. Learning takes the beginner's confidence and gives back an accurate view of one's own limits.
Cassandra's regret: most people, asked whether they want to know their future, say no. The numbers are in the third tab.
The left column measures freedom in options: what a person can do once they know. The right column measures not knowing in feelings: what a person can still hope, and what they need not yet carry. Blackwell's theorem is about a decision maker who acts; Caplin and Leahy's correction is about a person who also waits. A piece of knowledge that changes what you can do is worth having on both counts. A piece that changes only what you feel is where the not-knowing had a value of its own. The next tab turns that into a sum.
Take one thing you could find out: a test result, a number in the books, what a colleague earns, what a customer really thinks. Three questions decide whether knowing is worth its price: how much you could change with the answer, how likely the bad answer is, and how much the bad answer would weigh. The map below puts your case next to ten everyday ones. It is a way of ordering the question, not a measurement.
Move the three sliders for one concrete thing you could find out.
Across: what knowing lets you change. Up: the expected weight of knowing, the chance of the bad answer times its weight. Above the diagonal the not-knowing had value; below it, knowing pays. ● = your case, numbered dots = examples, placed by estimate.
The sum is deliberately simple: what knowing lets you change, minus what the bad answer is expected to weigh. Behind the first term stands Blackwell's theorem of 1953; behind the second the work of Kreps and Porteus and of Caplin and Leahy on anticipation, and the survey evidence in the next tab. Two things the sum leaves out. First, a bad answer can be turned into action later, when treatments, options or savings appear; the weight is not fixed. Second, the good answer has a value too, relief, and for cases with a low chance of bad news it can tip the sum. The examples are placed by judgment, not by data, and each reader would place them a little differently. That is the point of the exercise.
If knowledge only freed, everyone offered a free, reliable answer would take it. They do not. Where people can choose not to know, a large share chooses exactly that, and the choices are consistent enough to be measured.
Share of respondents who would not want to know, if a reliable answer were free. Two representative surveys, Germany and Spain, more than 2,000 adults (Gigerenzer and García-Retamero, 2017). Bars show the range across the items in each group.
The Huntington test is the clearest case. Since 1993 a genetic test has said with certainty whether a person at risk will develop the disease, which has no cure. The United Kingdom counted 9,407 predictive tests between 1993 and 2014, and estimated that 17.4 per cent of the at-risk population had taken it; more than four in five had not, and most of them never will. The ostrich effect is the everyday version: in 852 million daily records of 1.1 million investors, logins fell by 9.5 per cent after a day on which the market had dropped. Nothing could be changed by looking, and what is not seen does not weigh. The survey adds the shape of the whole: the worse and the less changeable the news, the fewer want it, and only about one in a hundred wants to know everything.
Not knowing is the one thing knowledge takes irreversibly. Nobody can unknow. Two experiments show what that does to the knower, and a third shows what the not-knowing felt like from the inside.
Stanford, 1990. One person taps the rhythm of a well-known song on a table; another has to name it. Before tapping, the tappers estimated how often listeners would get it right.
Elizabeth Newton, 120 songs. The tapper hears the melody in their head; the listener hears knocking. Once you know the tune, you cannot hear the knocking any more. Camerer, Loewenstein and Weber gave this its name in 1989, the curse of knowledge, and showed it in markets: the better informed cannot discount what they know when predicting the less informed.
Kruger and Dunning, 1999, logical reasoning test. Actual percentile against the percentile the participants believed they were at, for the weakest and the strongest quarter.
The weakest quarter scored at the 12th percentile and felt at the 68th. The strongest scored at the 86th and felt at the 74th. The error runs in opposite directions, and the reason is the same: judging one's own answer takes the same skill as producing it. Learning therefore takes something first, the beginner's confidence, and pays back later in a smaller, accurate figure. That is the loss the sentence in the title means, seen from the inside.
Socrates called knowing that he knew nothing the one thing he was sure of. It is the other form of not knowing, the conscious one, and it is the form that experts have and beginners lack. Whoever learns loses an unconscious not-knowing, which anybody could take from them at any time, and gains a conscious one, which nobody can. A related change is newer: Sparrow, Liu and Wegner showed in 2011 that people who expect a fact to stay stored remember where it is rather than what it is. The not-knowing returns in another shape, as knowledge about the place rather than the thing, and it feels like knowledge.
What happens to a market when one side knows and the other does not? George Akerlof answered that in a thirteen-page paper, written in 1966 and 1967 in his first year at Berkeley, rejected by three journals and published in 1970: The Market for Lemons: Quality Uncertainty and the Market Mechanism. The seller of a used car knows whether it is a lemon; the buyer knows only the average. So the buyer pays for the average, the owners of the good cars will not sell at that price, the average falls, the price follows, and the market shrinks until only the lemons are left, or disappears altogether. The mechanism is called adverse selection, and in 2001 it earned Akerlof the Nobel prize, shared with Michael Spence and Joseph Stiglitz.
Five grades of used car, from wreck to excellent; every owner knows what his own car is worth. Buyers value a car more than its owner does, by the factor you set, but they cannot tell the grades apart, so they offer that factor times the average of what is on the lot. Every owner whose car is worth more than the offer keeps it; the average falls; the offer follows. Step through the rounds, or switch on a signal that lets buyers see the grade.
Share of the possible gains from trade that the market realises, against the buyer's premium. Solid: the five grades above, a staircase that climbs one grade at a time. Dashed: Akerlof's own example, quality spread evenly between zero and two and buyers valuing every car at three halves of what its owner does; there no trade happens at any price, because at any price the average car on offer is worth only three quarters of it. The dot is your setting. Model, not data.
The argument fits on one page. Suppose the quality of used cars is spread evenly between zero and two, that owners value a car at its quality and buyers at one and a half times that, so that every car should change hands. At any price p, the cars offered for sale are those worth less than p to their owners, so the average car on the lot is worth p/2, and buyers, who see only the average, will pay at most three halves of p/2, which is three quarters of p. No price clears the market; nothing is traded, although every single car would have found a happy buyer had its quality been known. Akerlof's point was not the used car. It was that a market is not a place but a mechanism, and that the mechanism needs both sides to know roughly the same thing. The American Economic Review and the Review of Economic Studies returned the paper as too trivial to print; the Journal of Political Economy returned it because, its referees said, if it were correct, economics would be different. The Quarterly Journal of Economics printed it in 1970, and economics was different: the paper founded the study of markets with asymmetric information, and in 2001 the Nobel committee named it as the reason for the prize.
All four are in the original; the numbers are Akerlof's.
A 1956 survey he cites: hospital insurance covered 63 per cent of those aged 45 to 54 and 31 per cent of those over 65. Insurers cannot tell the healthy from the sick, so they price for the average; the healthy decline, the average worsens, the price rises, and the market thins out exactly where it is needed most. Medicare, created in 1965, is the public answer to a private market that had unravelled.
An employer who cannot judge a candidate's ability falls back on a statistic, and a group's average becomes the individual's price. Akerlof's remedy is the certificate: a school that reliably grades ability, the egg-grader, is worth more to its graduates than the ability itself, which nobody can see.
Dishonest dealings drive honest ones out of the market, a cousin of Gresham's law about bad money. The cost of a cheat is therefore not only what the cheated buyer loses; it includes the honest business that no longer exists because buyers stopped trusting the lot.
Village moneylenders charged 15, 25 and even 50 per cent while city banks charged 6, 8 and 10; yet the banks could not simply lend to the villagers, because a loan needs personal knowledge of the borrower, which the moneylender had and the bank had not. The managing agencies of Indian industry solved the same problem for investors with their reputation.
Akerlof's fourth section lists the institutions that exist because of the lemons problem. The two laureates who shared the prize added the two general answers, and Austria has its own arrangements.
The seller keeps the risk that the buyer cannot judge. A guarantee is a promise that costs the owner of a lemon more than the owner of a good car, which is exactly why it separates them.
A name gives the buyer a means of retaliation: the next purchase. Chain restaurants appear on highways between cities, where every customer is a stranger who would otherwise have to gamble.
Doctors, lawyers and barbers are licensed; degrees certify. The certificate does not create the quality, it makes it visible, and visibility is what the market lacked.
The informed side proves what it knows by doing something that would not pay for a lemon: a costly education, a long warranty, a return policy, an inspection at the seller's expense. A signal works only if it is cheaper for the good than for the bad.
The uninformed side designs a menu that makes the informed side reveal itself: an insurance with a high deductible and a low premium next to one with full cover and a high premium. The healthy pick the first, and by picking it they tell the insurer what he could not ask.
In a controlled experiment on eBay, the same dealer sold the same batches of vintage postcards under his established identity and under new ones; the established name fetched 8.1 per cent more (Resnick, Zeckhauser, Swanson and Lockwood, 2006). Feedback is the online version of the chain restaurant.
The periodic inspection under section 57a of the Motor Vehicle Act, the Pickerl, comes three years after first registration, again after two and then every year. It does not make a car good; it makes a bad one harder to hide, which is the lemons problem in one sticker.
A consumer who buys a used car from a dealer has two years of statutory warranty; for a used car first registered more than a year earlier it can be shortened to one, but only if that is agreed individually, not by a clause in the small print. A defect that shows within the first year is presumed to have been there at handover. The law moves the burden of not knowing from the buyer to the seller.
The Magnuson-Moss Warranty Act of 1975 set federal rules for written guarantees; Connecticut passed the first state lemon law in 1982, and every state has one now. The word Akerlof borrowed from the used-car lot went back into the statute book.
Interpretation, marked as such.
Every market in which the seller knows the quality and the buyer sees only the average runs Akerlof's rounds: freelance platforms, where the good designers leave when the price has settled at the average; second-hand goods sold by strangers; app stores; the market for advice. The newest case is the one the first chapter calls agentic flooding. When text, code and images can be generated at almost no cost and readers cannot tell what was checked from what was merely produced, the price of writing falls towards the average, and the people who check their work are the first to stop offering it. The remedies are the old ones under new names: a byline is a brand, a provenance record is a certificate, a reputation is a chain restaurant, and a guarantee is still a guarantee. And the connection to this chapter is the sentence in its title. The not-knowing of the buyer has a price, but it is not the buyer who pays it first. It is paid by the honest seller, whose good car is worth the average, and that is why the institutions above are worth what they cost.
Knowing costs in four currencies: it can lower satisfaction, it creates duties, it removes the excuse, and it disturbs the useful illusions. Each of the four has a measurement or a rule behind it.
Card, Mas, Moretti and Saez, 2012. A random half of the employees at three University of California campuses were told about a website listing every state employee's pay; 6,411 then answered a survey.
▼ job satisfaction fell
▲ intention to look for a new job rose
– satisfaction unchanged
– job search unchanged
The information raised the sum of what people knew and lowered the sum of how they felt. Those who learned they were above the median did not gain what those below lost; the effect is asymmetric, and it grows the further below the median a salary lies.
Ignorance of the law is no excuse, says the old maxim, but knowledge creates duties. A managing director who knows the firm is insolvent has sixty days in Austria; whoever knew or should have known is liable. A doctor who has seen a result must act on it. Once known, a fact obliges its knower.
The chapter on leadership dynamics showed the mechanism: the employee who sees a problem becomes the problem the moment they say it, and the one who does not see is hired for that. Not knowing is a shelter, and it is a shelter somebody else controls.
Taylor and Brown found in 1988 that healthy people hold mildly positive illusions about themselves, their control and their future, and that these go with mental health. Alloy and Abramson had found in 1979 that depressed people judged their own control more accurately; later reviews show the effect small, but the direction is uncomfortable. Nietzsche's sentence about art belongs here.
The Oviedo Convention of the Council of Europe made it a right: the wish of a person not to be informed about their own health shall be observed. It is the one right that protects people from information rather than giving them access to it, and it exists because of cases like the Huntington test.
Put together, the tabs give a rule that is short enough to use. Knowing is worth its price where it changes what you can do. Where it changes only what you feel, the not-knowing had a value, and nobody should take it from you unasked.
From dependence on those who explain; from the fear of the unnamed, which is larger than any named risk; from making the same mistake twice. In each case the freedom is measured in options, and Blackwell's theorem says the options never shrink.
The unconscious not-knowing, irreversibly. The hope that lives only in uncertainty. The shelter of not having known. And the beginner's confidence, which is replaced, later, by an accurate and smaller figure.
Whoever knows much knows the edges of it. That is the form of humility that is not smallness but precision, and it is the one thing the beginner cannot have. It is also the only defence against text that looks like knowledge and is not: the flood of the first chapter is knowledge without checking, and it frees nobody.
Whether people who know more are, on average, happier is not decided by the evidence known here; education goes with satisfaction, but mostly through income and health, not through knowledge itself. Whether the right not to know can hold in a world where every genome and every salary becomes retrievable, nobody knows. The sentence in the title therefore stays what it is: not a rule for everybody but a sum for each case, with one question at its centre, whether you could do something with the answer. If yes, the not-knowing is the price. If no, it is the value.
The terms used in this chapter, each with the year and the person they come from where there is one.
Dare to know. Kant's motto of the Enlightenment, from the essay answering the question what enlightenment is: leaving a self-inflicted immaturity.
A more informative signal is never worth less to a rational decision maker, because any information can be ignored. The formal version of knowledge sets you free, valid for decisions, silent about feelings.
Utility that depends on what a person expects, not only on what happens. With it, information that changes no decision can still have a cost or a value, and preferring not to know becomes rational.
Deliberately not obtaining information that is free and available. Documented for medical tests, finances and one's own performance; driven by feelings, by the wish to keep options, and by the wish to avoid duties.
The preference not to know one's future even when the knowledge is certain and free, named after the seer who knew and could not bear it. 85 to 90 per cent for negative events, 40 to 70 per cent for positive ones.
Paying less attention to information when it is likely to be bad. Investors open their accounts less after the market falls; 9.5 per cent fewer logins in the Vanguard data of 2016.
The inability of the informed to imagine the state of the uninformed. Shown in markets, in the tapping study, and in every explanation that leaves out the step the explainer no longer sees.
The least skilled overestimate themselves most, because judging one's own work requires the skill one lacks; the most skilled underestimate their relative standing. Knowledge lowers the felt figure and raises the accurate one.
Mildly inflated views of oneself, one's control and one's future, found in healthy people and associated with well-being. The evidence that a little not-knowing about oneself is part of a normal life.
The rule that a person's wish not to be informed about their own health is to be respected. Born from genetic testing, where the answer is certain, unchangeable and lifelong.
When people expect information to remain available, they remember where to find it rather than the information itself. Not knowing outsourced, and felt as knowing.
Knowing the limits of one's own knowledge. The conscious form of not knowing that learning gives back in exchange for the unconscious one it takes.
One side of a deal knows something the other cannot see: the seller the quality, the borrower his own risk, the applicant her own ability. The condition under which markets thin out or fail.
When the uninformed side prices for the average, the better half of the informed side leaves, the average worsens and the price follows. The lemons mechanism, named after the used-car lot.
An action by the informed side that would not pay for a lemon: a guarantee, a degree, an inspection at one's own expense. It works because it costs the good less than the bad.
A menu designed by the uninformed side so that the informed side reveals itself by choosing: deductibles, tariffs, contract lengths.