We have been having a series of interesting discussions lately on various aspects of the economy and markets.

I notice that some traders have a hard time discerning between different aspects of the intelligence hierarchy. They obsess about data,  but get lost in it. losing the ability to create context and meaning. They have information, but they lose site of its meaning with the broader context. Even some folks with knowledge fail to apply it appropriately.

Here is how I think about these 4 elements:

Data: Data is the raw building blocks; it consists of raw numbers, but lack context or meaning. 1,200, 9.6%, and  $170k are all piece of data.

Information: Is the application of structure or order to data, in an attempt to communicate meaning.  Knowing the S&P500 is at 1,200 (up 5% YTD), Unemployment is at 9.6% (down from 11%), and GDP is 2.5% (revised from 2%) are examples.

Knowledge: An understanding of a specific subject, through experience (or education). Typically, knowledge is used in terms of a persons skills or expertise in a given area. Knowledge typically reflects an empirical, rather than intuitive, understanding. Plato referenced it as “”justified true belief.”

Wisdom: Optimum judgment, reflecting a deep understanding of people, things, events or situations. A person who has wisdom can effectively apply perception and knowledge in order to produce desired results. Comprehending objectively reality within a broader context.


Chart via Information is Beautiful

See also infosthetics


UPDATE: December 2, 2010 5:46am

Here is another version of this:

via Nathan.com

Category: Digital Media, Philosophy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

19 Responses to “Intelligence Hierarchy: Data, Information, Knowledge, Wisdom”

  1. bear_in_mind says:

    Yes, I recall doing academic research in grad school and coming to this paradigm when so much information was suddenly becoming accessible digitally. That was 2002. The paradigm has only become more salient with the onslaught of mountains of data.

    IMHO, the one glaring omission from ‘Wisdom’, which I suspect you’d agree, is insight. Insight as applied to: 1) The reasonable consequences of one choice, or course of action, versus another; but most importantly, 2) Recognizing and acknowledging mistakes, then integrating the lessons contained therein.

  2. curbyourrisk says:

    You can take all the data, informtion, knowledge and wisdom you want. The only thing that matters is what you do with it. I used to trade on it and was pretty good at it.

    Here are a few problems.
    1 – Data can be manipulated, and it is only as reliable as the source.

    2 – Information….is only as good as the data, and is often lost in context between the 2 people communicating the data. For example (as you use) Knowing the S&P500 is at 1,200 (up 5% YTD) – but understanding that the dollar is weaker and inflation is rampant in energy and food costs, Unemployment is at 9.6% (down from 11%) – again, this does not tell the whole story as millions of people have rolled off the report and are now considered UNEMPLOYABLE…not to mention that unemployed people are now paid for 99 weeks (where is this in the INFORMATION), and GDP is 2.5% (revised from 2%) are examples (do I really need to go into this again??? The increase in real private inventories added 1.3% to that reading – but no mention of that).

    3 – Knowledge – An understanding of a specific subject, through experience (or education). Typically, knowledge is used in terms of a persons skills or expertise in a given area. Knowledge typically reflects an empirical, rather than intuitive, understanding. Plato referenced it as “”justified true belief.”

    4 – Wisdom – Wisdom: Optimum judgment, reflecting a deep understanding of people, things, events or situations. A person who has wisdom can effectively apply perception and knowledge in order to produce desired results. Comprehending objectively reality within a broader context.

    (I agree with most of what yu say about wisdom…BUT….why should anyone work to produce DESIRED results. If you are predetermining your results and working at that goal…what are you really achieving????)

  3. obsvr-1 says:

    perhaps, a person who has wisdom can effectively apply knowledge in order to perceive when others are using data and information to produce a desired result

  4. sparrowsfall says:

    Jim Manzi and many conservatives seem intent on suggesting that the bottom tier is unnecessary, because the top three tiers are imperfect. The “you can make data say anything you want it to” argument.

    Sarah Palin and many conservatives would have you believe that the bottom three tiers are unnecessary — that casual lifelong observation and surmises/notions based on that are all one needs. Closely akin to the “everything I need to know I learned in kindergarten” theory.

    Lefties are also prey to this rather particularly American quasi-”democratic,” anti-expert, anti-knowledge, anti-education, anti-”elitist” mindset, but it seems to be particularly rampant on the right. (Righties give lip-service to the value of education, but for them that often just means readin’ writin’ n’ ‘rithmetic. Don’t get too uppity.)


  5. AHodge says:

    all true sensei
    jus add scientific scepticism
    and knowing what we do not know.
    partizan wisdom and partizans is oxymoron(s).

  6. AGG says:

    Some minor observations:
    Without a civilized moral prespective, wisdom is impossible. Morality seems to play no role in this ‘beautiful ‘ chart. This chart is as ‘beautiful’ as the fangs on a tiger. Fangs are aesthetically pleasing, 100% effective in acquiring sources of energy and inspiring trepidation in future sources of energy and competitor fangs. However, fangs do not think. Fangs do not avoid destroying offspring. The brain does that. Tigers would not exist if they didn’t ensure the safety of their offspring. Modern ‘thinking’, as portrayed by this ‘beautiful’ chart, is non-selective predatory behavior. This is not MAD (mutually assured destruction); this is ASSURED DESTRUCTION.

    True wisdom is the fear of G_d.

    Now let’s celebrate the 3.3 trillian bucks the fed loaned European banks on our dime. After all, they are just assuring their continued existence by using charts like the above for their benefit, right?

    You can applaud the pragmatic approach of modern thinking which eschews such ‘antiquated’ ideas like morality and decency. You can fool yourself into thinking you have lots of morality and decency for those on your team and it’s okay to fuck everybody else. You can laugh at the concept of a supreme being.

    Good luck with that. Our ‘experiment’ has been very short lived and it’s coming apart at the seams. A total idiot can see that. Unfortunately, those with their bellies full cannot see the destruction they have wreaked. We are a cognitively impared materialistic society. I’ve often wondered how people can so willfully, stupidly eat the seed corn of future societies to the ultimate detriment of their offspring. Perhaps it has something to do with what psychologists call the Dunbar number. They claim that we are cognitively limited as humans for caring about more than about 150-to 200 people (Dunbar number). So, if that’s our circle and, it has lots of money, then the world can crash and we don’t give a fuck.
    Anyone with half a brain can see that, if we are cursed by this limitiation, no organization should ever have power over more than the Dunbar number of people or the eventual destruction of society is guaranteed by the absence of morality in the form of empathy as a counterweight to our predatory impulses. Truely wise men in religions knew this so they tried through their writings to overcome this limitation by preaching altruism and the respect of all men, regardless of whether they were in your ‘group’ or not. They knew it was what the creator wanted for our own benefit.

    I know, most people reading this could care less. Empathy abscence will be carved on our tombstone by the the ETs.

  7. constantnormal says:

    I find this pyramid interesting … it takes a lot of items in each tier of the pyramid to support the next layer, which is, by definition much more sparsely populated.

    There is another pyramid, that starts with a few cherished and deeply-felt beliefs/opinions, and has a larger layer of “linked elements”, let’s call them rumors and stories. And then atop that layer is a still-larger layer of cabals and social groups/mobs, whose job it is to police the meme-sphere and eliminate all thoughts/opinions that do not conform. And there are certainly larger layers atop this one.

    Yes, it is an inverted pyramid, and it represents how our human world operates in the era of infinite communication channels and complete freedom to believe any damn thing we want to.

  8. xynz says:

    I’m an MSEE, working on a doctorate in Information Science. Specifically, I’m doing digital signal processing (DSP) for the reduction if high dimensionality data sets down to more manageable/revealing representations.

    My dissertation contains a progression that is very similar to the one you describe. Raw data is collected from a system under study. Then we use a data reduction technique to extract useful* information about the system. In his seminal work of the same name, John Tukey calls this kind of data reduction an “Exploratory Data Analysis “(EDA).

    After we have extracted information about the underlying system, we use that information to build a model of the system. Ideally, this model gives us knowledge* about the system that we can use to predict/control its behavior.

    *The standard by which we judge the utility of information/knowledge is how well it permits us to predict/control system behavior.

    Raw Data ->(EDA)->Information->(Modelling)->Knowledge.

    My doctorate is on quantification and analysis….so wisdom is outside its domain.

    But I also have a degree in philosophy, so I would say that wisdom is a kind of meta-model which gives us a much needed perspective on knowledge. Wisdom also incorporates ethics and it informs us of:

    When should we pursue knowledge?
    When should we use knowledge?
    What are the implicit limits to our knowledge?

    That last one is extremely important. Knowledge is a model, or a map of the world. All too often, we confuse the map with the terrain it is representing. The methods by which we collect data will introduce biases and distortions. The means by which we analyze data will introduce biases and distortions as will the models that we.
    This principle is evident, even in the hardest of the hard sciences: physics. If we measure and analyze electrons in one way: they appear to be particles. When we measure and analyze them in another way: they appear to be waves.

    Conventionally, it is said that electrons are both particles and waves…or wavicles. But the “Truth” is that they are neither waves nor particles. Our senses and brains have not evolved in a manner that permits us to perceive and conceive of what electrons *really* are. Instead, the biases of our inherent limitations force us to cast electrons as entities within the realm of human experience: we don’t really understand the behaviour of electrons, but we do understand the behaviour of waves and particles.

    So our most rigorous and quantifiable measurements are still shaped by the unavoidable biases of our inherent limitations. An important facet of wisdom is a humility which is grounded upon our epistemic limits. A wise man understands that Plato’s Allegory of the Cave has real world implications.

    When we look back on history and contemplate humanity’s great tragedies, we find that one of the common denominators has been the transgressors arrogant certainty of their “knowledge”.

    Information is not knowledge, knowledge is not wisdom, wisdom is not truth, truth is not beauty, beauty is not love, love is not music, music is the best! Wisdom is the domain of the Wizz (which is extinct). Beauty is a French phonetic corruption of a short cloth neck ornament currently in resurgence. [h/t Frank Zappa]

  9. patfla says:

    Um – this appears to be Maslow’s hierarchy redux.

  10. cognos says:

    Yeah… data is just raw. It needs to be questioned, understood.

    The recent story on “$9T in Fed overnight loans” and some incredulous reactions is a great example.

    If it was overnight… it was turned 10-100x over the period. The the real amount “loaned” or “outstanding” in the traditional sense was close to $900B or maybe even less, like $90B.

    I have probably “loaned” or “borrowed” $100M in my lifetime. So what? Its 1000x of 100,000. Its stupid. Data is usually stupid.

    The grand daddy of this example is the “$25T in unfunded liabilities” due to social security and medicare. In one silly guys theoretical construct, this is “correct”. More carefully understood our future debt will always look astronomical in todays dollars… because it is discounted at “inflation” while our income grows at “inflation+1-2-3%”. The more you look forward, the more the future debt looks astronomical.

    The debt/gdp ratio… however, doesnt really change much. Ah, data. If you know what to do with it, its smart.

  11. Tom K says:

    This is a rehash of nathan shedroff circa mid 90s barry.


    BR: Its much older than that — Plato addressed the differences between knowledge and Wisdom; Aristotle discussed what information meant to man’s pursuit of knowledge.

    I found it relevant to our prior discussion of those Random Things I was Thinking About — especially #s 4 and 9.

  12. Tom K says:

    From 1994 to be exact.


    BR: Oooh, that’s good. I’ll add that above.

  13. highside says:

    Sorry, made me howl with laughter.

    Most of the things contained in wisdom are just insupportable by any evidence so their proponents claim “wisdom” as justification

  14. Whiskey Lunch says:

    To those whose opinions I value most, I say…

    Above all, it is because of your insightful ability to so often see the hidden relationships of things.

    …that’s high-grade wisdom.

  15. daf48 says:

    He who knows, does not speak
    He who doesn’t know, blathers

  16. Whiskey Lunch says:


  17. leonardcrook says:

    Yeah, it’s that last one, the really hard part, that seems to elude me.

    BR: There is a Gahan Wilson cartoon in the New Yorker this week meant for you.

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