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In the Name of God بسم الله
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The role information in exchanges - Introduction

Haji 2003



I have a few blog posts dealing with knowledge and information (see links at the end of this post). Some of that material tries to frame Qur'anic injunctions in terms of contemporary ideas about exchange to help understand them and their direction better.

This post provides some basic background to the contemporary concepts I am familiar with and which underpin some of that discussion. The ideas here are taken from the economics discipline. I have taken care to only reference credible (refereed) sources, rather than personal blogs etc. While I am familiar with these concepts, i would not say that I have a specialist knowledge of them.

This post does not just deal with abstract economic concepts, if you read until the end, you'll see an attempt to read the content of one ayah through the lens of concepts that I write about at the start of this post.


Information asymmetry

Given the existence of bounded rationlity what happens is that there can be an information asymmetry e.g. between buyers and sellers. This means that e.g. the sellers may have more information about what is being sold that the buyer does and the reverse can sometimes happen as well. The existence of an asymmetry means that the people with information can take advantage of those who do not have it. The following definition is from a financial context, but you can easily imagine the same in any other.


Information asymmetry results whenever some subset of investors does not have access to the private information that is available to other investors.

Drobetz, W., Grüninger, M.C. and Hirschvogl, S., 2010. Information asymmetry and the value of cash. Journal of banking & finance, 34(9), pp.2168-2184.


Why does information asymmetry exist?


Bounded rationality

Some market participants do not have as much information as others because because there can be limits to the ability of individuals to gather, process and retain information. This opens them up to being taken advantage of, via opportunistic behaviour. The following explains this in more detail. 


The perfect rationality of homo economicus imagines a hypothetical agent who has complete information about the options available for choice, perfect foresight of the consequences from choosing those options, and the wherewithal to solve an optimization problem (typically of considerable complexity) that identifies an option which maximizes the agent’s personal utility. 



What problems arise due to the existence of information asymmetry?



I think the following quotation from the economist Oliver Williamson covers the concept quite elegantly and he compares it to other concepts prevalent in the economics discipline, moral hazard and adverse selection.

The link below is to his complete article in the journal 'Managerial & Decision Economics, VOL. 14, 97-107 (1993). It gets technical in places, but don't let that worry you, just move on to the bit you can understand. That's what i do anyway. The article goes on to discuss socialism etc. which is something we can come back to.


Opportunism is a less technical term than adverse selection and moral hazard. It suggests, correctly, that the troublesome behavior in question is not an arcane economic condition but is familiar and pervasive. Not only are the failures to self-disclose true attributes ex ante (adverse selection) and true performance ex post (moral hazard) both subsumed under opportunism, but the failure to tell the truth, the whole truth and nothing but the truth is impli- cated by opportunism.



Bringing the ideas together

The reference to information asymmetry is implicit in Qur'anic injunctions such as the following:



وَلاَ تَقْرَبُواْ مَالَ الْيَتِيمِ إِلاَّ بِالَّتِي هِيَ أَحْسَنُ حَتَّى يَبْلُغَ أَشُدَّهُ وَأَوْفُواْ الْكَيْلَ وَالْمِيزَانَ بِالْقِسْطِ لاَ نُكَلِّفُ نَفْسًا إِلاَّ وُسْعَهَا وَإِذَا قُلْتُمْ فَاعْدِلُواْ وَلَوْ كَانَ ذَا قُرْبَى وَبِعَهْدِ اللّهِ أَوْفُواْ ذَلِكُمْ وَصَّاكُم بِهِ لَعَلَّكُمْ تَذَكَّرُونَ {152}

[6:152] And do not approach the property of the orphan except in the best manner until he attains his maturity, and give full measure and weight with justice-- We do not impose on any soul a duty except to the extent of its ability; and when you speak, then be just though it be (against) a relative, and fulfill Allah's covenant; this He has enjoined you with that you may be mindful;



I have put into bold the relevant text.

  1. The injunction seems directed at the seller who is able to measure accurately what they sell to the buyer but who may be otherwise tempted to cheat the buyer.
  2. The buyer may not be able to tell that they have been cheated (due to their bounded rationality)
  3. And as a result of this information asymmetry the seller is effectively behaving in an opportunistic manner.


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      Giving to charity then or detaching ourselves from what we own, is difficult for humans. It is part of the human condition. And yet IIRC the Qur’an mentions charity every time it mentions prayer.
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      Coulda, Woulda, Shoulda
       A discussion about achievements in life or the lack of them in the Thoughts threads reminded me of this.
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       Just because we did not do a certain degree 15 years ago, does that mean we’ll be any better off or happier doing it now? The world when the decision was taken not to do the degree or when the opportunity was missed, was a different world to the one we are in now. The benefits of that degree may well have changed. The costs of doing it now may well be different to what they would have been in the past, so the value of the whole exercise may be different as well.
       In hankering after what could have been and in trying to get it back we could be losing focus on what else we could be achieving now in the time that we have left that may offer greater value.
       The whole process of looking backwards is one that assumes we are now older than we were before. As we get older the reduction in the time that we have left becomes more acute – the focus now really has to be on what really matters.
       So as we get older the very process of worrying about previously missed material gains and losses may actually compound the problem rather than make it better. The goals have to be different now.
       The benefit that age brings is that older people can compare the achievements and mistakes of people that they have known over a long period of time. Young people cannot do this. They can be told about it, but personal experience often has more resonance.
       Older people can see where their peers started, what they did in terms of materialistic and spiritual activities and observe where they have ended up. That longitudinal perspective is one whose benefit you don’t have if you are young.
        In the final calculation when you start attending the funerals of people you have known for a long-time, you realise how futile material achievements are, especially at the margins. If an individual has acquired enough material success to have been self-sustaining (including any family) surely any assessments of success and failure over the life led thus far need to be in terms of spiritual and moral mistakes and future rectifications?
      Thought of in this way, reflections about the past become an intensely productive, positive and indeed happy activity. Because whatever happened in the past that enabled us to arrive at a destination where there is a realisation (niyat) that rectification is necessary, surely that has been a positive result? 
      These are the only changes that I can think of which are not rendered irrelevant by changing circumstances in the same way as the ones I mentioned at the start of this post.
    • By Haji 2003 in Contemporania
      Since the inception of Islam, there had been various sects competing for prominence; many had died out, and the two major ones were Twelver Shia and the Sunni fiqh.
      Then suddenly, from the start of the 19th century to the end of that century, we have the emergence of Ahmadiyya, the renewal of Ismailism and the creation of a new faith entirely, Baha ism. Go back a hundred years, and we can add Wahhabism to this list. I identify a common thread amongst all these new religions in this post.
      Four religions in a couple of hundred years ... and three Knights
      That's an unusually fertile period of spiritual spontaneity by any measure. Or is the explanation for such flowering of faith more mundane and perhaps guided by vested foreign interests or even stimulated by them? Because what marked that period, from the ones that preceded it was the growing recognition by countries from outside the middle eastern region that it was an important geographical location in itself and also for its proximity to the wealth of India. That latter point is important because there is little disagreement that British foreign policy towards the middle east paid due cognisance to the views and interests of the Government of India - of course, that is a pre-independence Government, so wholly controlled by Britain.
      Abdul Wahhab developed what is commonly referred to as an austere interpretation of Islam, one that denounces the rituals and beliefs that he felt had accreted over the centuries. There is a rich vein of (conspiracy) theories, easily found on the internet, that in his travel to Iraq in the early 18th century, he could have come across British agents (specifically a 'Mr Hempher'). Certainly, the British East India Company had been well established at that time, and a British consulate had been established in Iraq in 1802. Less widely commented on is the fact that the famous Danish/German explorer Carsten Niebuhr travelled to Arabia in 1761.
      But leaving conspiracy theories aside, it's possible to develop an argument about foreign involvement based on far less controversial ideas. Britain may not have been a midwife to Wahhabism, but I think people of all geo-political persuasions would agree that Britain was a helpful nanny.
      The person with whom the British did have extensive dealings was Ibn Saud, who had entered into a pact with Abdul Wahhab in 1744. British sources said he persistently approached Britain for support and was generally rebuffed. Saud was a political leader who continued to promote the Wahhabi philosophy after the death of its founder. Saud was no cleric. But he was shrewd enough to mould the ideology as the basis for providing a motivation for conquest and a glue that would hold his fighters together. British records show that he took responsibility for hiring and firing clerics based on his political agenda.
      My source for this and some other information about Wahhabism that is presented here is a PhD dissertation submitted to King's College London in 2002 by Hassan Syed Abedin, titled "Abdul Aziz Al-Saud and the great game in Arabia, 1896-1946".
      Ibn Saud (who would in due course be given the British title 'Knight Commander of the Most Eminent Order of the Indian Empire') was ultimately successful in his goal of receiving support from Britain in 1914 when Britain needed to have someone distracting the Ottomans so that they could devote fewer resources to World War I taking place in Europe.
      Prior to that, it's argued that Ibn Saud had spent considerable efforts in achieving a status similar to the one held by Mubarak Al Sabah, the emir of Kuwait. This ideal status would have meant that Sauds and their territories would have been subjects of the Ottoman empire, but who would be given the protection of the British.
      This version of events does not look very good for Ibn Saud, presenting him as someone who is willing to do business with non-Muslims in order to undermine a Muslim ruler, and he'd serve a useful role in helping Britain with the following objective:
      Crewe private telegram to Hardinge, Viceroy of India, November 12,1914, cited in Busch Britain, India and the Arabs: 1914-1921, p. 62.
      Further, east we find the rise of the modern-day Nizari Ismailis, whose Aga Khan in the mid-19th century created a new role for himself in providing services to the British Empire (Aga Khan I would receive an annual British pension of £20,000 per year). Mihir Bose (a noted writer on the subject) says that the Aga Khan had to plead his case for some time before the British took him seriously since they wanted to be sure that they were backing a local ally who'd present them with better value than the alternatives. His grandson Aga Khan III would be bestowed the title of 'Knight Grand Commander of the Order of the Star of India'. Their esoteric faith was totally at odds with the one promulgated by Wahhab, but regardless of that difference served a useful purpose.
      Regardless of the support he gave, the British were aware of the hypocrisy of his religious position:
      Sir Charles Napier to Governor-General of India, Earl of Ellenborough, 1843
      The period around the 1840s is interesting for the following reason, as the following letter makes clear:
      Purohit, T. (2012) The Aga Khan Case (religion and identity in colonial India). Harvard University Press, Cambridge, Mass.
      The writer of the letter is Major Henry Rawlinson, the military officer who worked for the commission in Persia from 1834 to 1838 and subsequently served as a political agent in Qandahar. So the British were interested in there being dislocation in Iran at around this time because of a perceived threat to their interests in Afghanistan.
      This makes the genesis and development of the third religion covered here all the more interesting.
      In roughly the same period, the mid-nineteenth century, we also see the rise of the Bahai faith in Iran. Mirza Ali Mohammad was born in 1820 and was executed in 1850. A focus of his attention was economic inequality in Iran. There were clear political implications, as  noted by the middle eastern commentator Juan Cole:
      The socio-economic aspect of Bab's teachings are also explained here:
      Mansoor Moaddel (1986) The Shi'i Ulama and the State in Iran. Theory and Society, Vol. 15, No. 4 (Jul., 1986), pp. 519-556. This extract: p526.
      This socio-religio-poliitcal impact of a new faith did not go unnoticed by the colonial powers of the time and gained ground as a result of their support as a means of destabilising the Qajar dynasty. Like Ibn Saud, Abdul Baha, eldest son of the Baha'u'llah, would also be awarded the title of Knight Commander of the Order of the British Empire, ostensibly for his work in alleviating famine.
      Shahvar, S. (2018) ‘Oppression of Religious Minority Groups in Times of Great Upheaval in Late Qajar Iran: The 1892 Persecution of Jews and Baha’is of Jewish Origin in Hamadan Based on Two Newly Discovered Letters’, The Jewish quarterly review. University of Pennsylvania Press, 108(2), pp. 225–251.
      Going further east, we find the third innovation in the Muslim religion towards the end of the 19th century and one that would lead to charges of being the creation of a new religion entirely. The Ahmadis would destabilise Muslims in the Indian sub-continent. Their support for the British in India is expressed in their texts:
      There is a reason for this approach; unlike the established religions of the Indian sub-continent, the leader of this new religion needed legitimacy. By acquiescing to the needs of the invaders, he sought to achieve that. For the established religions doing the same would have been challenging because they would have lost the legitimacy of their many existing followers; the new religion with far fewer followers had much less to lose in this respect but potentially a great deal more to gain. 
      I am not saying that the British went into the middle east with the prior notion of introducing new faiths. However, it is reasonable to say that in an environment where there were new powers in the region, for someone starting a new faith, the potential for a symbiotic relationship with these new arrivals was obvious. 
      For the invaders, these new religions provided a ready-made supportive constituency with which to challenge the established order, whether it be the Ottomans, the Qajars or the established religious order in India.
    • By Haji 2003 in Contemporania
      Putting 2 and 2 together
      I have some knowledge of what social entrepreneurship is and like most of you I have read the story of Prophet Nuh ((عليه السلام).) in the Qur'an and Bible. At this point, I would start googling like crazy to build up the argument, but I decided to take a short-cut and asked chatgpt the following question:
      Can Noah and his construction of the ark be considered a form of social entrepreneurship?
      Now there are aspects of social entrepreneurship that are important that chatgpt has missed out, and to be honest they are pretty crucial to the link between his story and the concept of social entrepreneurship and I'll add them later. So I asked chatGPT:
      How does social entrepreneurship differ from entrepreneurship?
      This is taking us in the right direction. Looking at each of the above bullets in turn: 
      Prophet Nuh ((عليه السلام).) was focusing on social change (saving people from sin) and obviously had an environmental goal in mind (overcoming the dangers posed by the flood).  Social entrepreneurs target marginalised groups and Prophet Nuh ((عليه السلام).) was going for people who were sinners. The new product he had created was the ark His metric for success was the number of people saved.  
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