Lessons in Information Asymmetry
When I first moved to San Francisco, I didn’t have a car. Who needs a car in San Francisco? And the parking is like $350 per month so that is a hard no.
When I first moved to San Francisco, I didn’t have a car. Who needs a car in San Francisco? And the parking is like $350 per month so that is a hard no.
But sadly because I had a Startup, I had to go to Palo Alto, Mountain View, Oakland for meetings and events. That meant that I had to rent a car or waste hours on public transportation and Uber/Lyft.
As a Startup that never raised money from a VC, I knew we had to rent a car but our budget was best case $1200 per month. That’s $66 per day, including insurance.
Welcome to Information Asymmetry.
Information asymmetry is a fancy word of saying “I know something that you don’t”. You can use that when you negotiate for a job, with customers, with sales people and you girlfriend/wife when it is time to do the dishes.
As the first step, we need to identify our informational advantage.
The informational advantage I had was the length of the rent. 30 days is not usual. I decided to go with it.
When you want to rent a car, the typical conversation goes like this:
“Hello, I would like a car from that date to that date”
“Oh, I see, we have this model and that model for $12 more”
“I am looking for the cheaper option”
“Got it, that is $100 per day plus insurance, plus taxes for 3 days”.
Using information asymmetry:
“Hello, I would like a car for three days”
“Oh, I see, we have this model and that model for $4 more”
“Great, what is the price for the cheaper model?”
“That will be $100 per day plus insurance, plus taxes for three days”.
“So it is roughly $100 per day, right?”
“That is correct”
“Can we do something better if I wanted the car for a week?”
“We could do $95 if it is for week”
“Amazing! Thank you a lot. You know what, if we can do something better in terms of pricing, I could go for three weeks as I don’t want to bring the car back again”.
“I see. The best I can do if you go for a whole month is $90”.
“Thank you! That is perfect”
The way we used information asymmetry was by not revealing all the information we had in one go but in a dripping style.
Can it work when you negotiate your salary? Of course it can!
You need to gather as much information as you can before going for an interview. That means knowing:
- The average salary for that position
- The average salary for that position in that company
- Other possible perks (extra stocks, more vacation days)
Without this information, we are in an informational disadvantage as we have no idea whether the salary that we want is even feasible for that company. Yes, an engineer can make $350k in a public tech company but in a small Startup that is doubtful.
During my whole professional career, I managed to get way more than any other of my peers in terms of salary, bonuses, stocks and vacation days.
Are there any ways that you have used information asymmetry? Leave them in the comments below!
Coming up next: Information Asymmetry to negotiate a raise