The cost of knowing

Over the past year, the cost of producing rigorous, evidenced diligence has fallen hard. This is our read on what that does to markets built on scarce information and to the business of supplying it.

The market with no price

When one side of a trade knows more than the other, the market misprices and under-trades. A buyer who cannot judge quality will pay for the average of what is on offer. At that price the sellers of anything better than average walk away; the average of what remains falls; the price follows it down, and the next tier of good sellers leaves in turn. The market unravels from the top. The gap between what a business is worth and what a buyer who cannot see it will pay is the lemons discount.1

In a market with a price, the finding-out has been done for you. Friedrich Hayek’s insight was that the knowledge that matters is scattered — held in pieces by the people closest to each part of the work, never gathered in one place. A price gathers it anyway: the number collects what everyone who paid to find something out has learned, and hands it to you for nothing. A listed company has such a number. How much that price tells you depends on what it cost the informed to become informed. A market is never fully informed while information costs anything — if the price already revealed everything, nobody would pay to discover it, so someone always must.2

Figure 1

The cost of knowing

Share of deals done with an informed buyer, against the cost of becoming informed.

A private company has no such number. No trading crowd has done the finding-out on a buyer’s behalf, and there is no price to read the answer from. A private deal carries both problems at once: the seller knows more, and nothing has collected what anyone else discovered. So the buyer produces the information first-hand and pays for it, in time or in money. There is nothing to free-ride on: the share of buyers who are informed is set by the cost of becoming informed, and by nothing else.

Private deals are a good example because the stakes are high. The worth of a piece of information rises with what the decision riding on it puts at risk — plain sense: you pay to be sure in proportion to what being wrong would cost.3 This is why the buyers of large deals pay for a full study at all.

But a full study has cost a large firm’s fee whatever the size of the deal, so there has been a threshold. The fee scales with the scope of the work, not the value of the deal, and it is large either way. Above a certain deal size the study pays for itself; below it the decision runs on the partner’s judgment, the seller’s numbers, or cheaper substitutes — an expert call, a red-flag review — which buy a fact without the method, synthesis or provenance that make a study one. The same fund, applying the same care, holds its smaller deals to a different standard of evidence: set by the cheque, not by what is knowable. Most small deals, in what we see, buy no external study at all.

Figure 2

Who gets evidence today

The evidence behind a deal decision, by deal size.

Below the threshold, the lemons problem applies in full. Small businesses change hands at prices set by the average of their cohort, so the owner of a good one holds out for a buyer who can see past the average, or does not sell. The deals that clear tilt toward the ones that should not have — the seller who knows the business is worth less than the going rate is the keenest to take it. The result is the familiar three: mispricing, capital sent to the wrong places, and fewer trades than there ought to be. The gap is visible if not cleanly attributable: unlisted businesses change hands at discounts of roughly 15–30% to comparable listed ones, though the literature credits illiquidity for as much of that as information.4

Figure 3

The lemons discount

What a buyer pays against what the business is actually worth.

The cost of finding out fell

The information a deal needs is what consulting firms have produced, and its cost was set by labour. A study is, at bottom, three kinds of people-hours: the research, analytics and production that assemble the facts and turn them into a document; the interviews that reach what no document holds; and the judgment and expertise that decide what it all means. All three were labour, and consulting was a textbook case of cost disease — an activity with little productivity growth whose price, against everything that was getting cheaper, rose for decades.5

In the last year that cost fell in all three parts at once, for three different reasons. Research, analytics and production fell fastest and furthest; interviews fell next; and judgment did not fall in price at all but came to cover far more ground per hour. The three fall differently, and the chart carries the shapes.

Figure 4

Three parts of a study, three cost curves

Cost of one more study, as more are run, indexed to a large firm’s study at 100.

Research, analytics and production went first, and went furthest. This is extraction from registers and filings, benchmarking and statistics, and the making of the deliverable itself — the slides, the models. It is now done to a professional standard by software agents that did not exist a year earlier, and it arrived in two steps. An autumn-2025 generation — GPT-5, Claude Sonnet 4.5, Gemini 3, Claude Opus 4.5 — could run long, multi-step work on its own rather than answer one prompt at a time; by late 2025 the task a model could finish unaided had reached about five hours. A 2026 generation — GPT-5.5, Claude Sonnet 5, Claude Opus 5 — is rated above the human expert on professional deliverables.6 In September 2025 an evaluation built by professionals averaging fourteen years’ experience found the best model’s work matched or beat their own on 47.6% of deliverables; by mid-2026 the best models sat well above that baseline.7 For this part of a study, the cost of producing one more is now near zero.

Interviews went second. Finding the right respondents can be automated, and the interviews run at scale by voice agents working to a structured guide. The first speech-to-speech model good enough for production arrived in August 2025; a faster generation followed in July 2026. The expert networks — the firms whose business is arranging these calls — shipped AI-moderated interviewing within the year: Guidepoint in October 2025, AlphaSense from 2025 and onto the Tegus platform in 2026, GLG in August 2026.8 The experts on the calls are still paid, so this cost falls rather than disappears; but the labour around them — sourcing, scheduling, sitting in — was most of what a study spent here.

Judgment did not get cheaper; it got leveraged. The judgment that decides what the evidence means is still the scarce input, and still costs what an experienced person’s hour costs. What has moved is how many of those hours a study needs. The machine now does the middle of the work — the assembling, the first drafting, the routine analysis — so the expensive judgment is spent only where it is required, and a single senior can stand behind far more studies than before.

Expertise no longer has to sit on the payroll of the firm that sells the judgment. It is bought in for the question and released when it is answered. Access to outside experts is not new — the expert networks have sold exactly that for twenty-five years — so access is not what changed. What changed is the cost of using that expertise inside a study: finding the right person, briefing them, drawing out what they know, fitting it into the argument. Firms exist for a reason: using the open market has its own costs — search, bargaining, coordination — and a firm is worth having when those are high.9 Lower them, and work once done inside the firm moves outside it.

This unbundling only makes sense now, because production was what held the bundle together. What a consulting firm sold was four things at once: judgment, expertise, production, and the brand that stood behind the answer. They came together because they had to. A client who wanted the judgment without the pyramid beneath it had nowhere to buy the production alone; an experienced individual could not turn a question into a finished study by themselves; so the only real alternative to one large firm was another. Once production costs almost nothing, the knot comes undone. Judgment and expertise can be bought separately, and a small team with a capable machine can deliver a whole study end to end. The production line was the consulting firm’s moat, and it is the part that has gone.

Closer to the truth

Lower cost means a lower price, more studies bought, and more surplus in total. How much of the fall in cost reaches the price is a choice the sellers make — hold the old price and keep the difference, or pass it through and win the volume — the bridge to the last part of this argument. To the extent it is passed through, the picture is the standard one. Every study worth more to a buyer than it cost to make, yet left unbought because the price sat above the buyer’s line, was value gone missing — a deadweight loss, the triangle of trades that should have happened and did not. A lower price shrinks that triangle, and the surplus it creates tilts toward buyers and the smaller deals priced out before.

Figure 5

Surplus: what falling cost creates, and who keeps it

Two prices for the same demand.

At the large firms’ price

Cheaper to make and to buy

buyers keepseller keepsnot bought

The threshold moves a long way to the left. A study’s value still rises with the size of the deal; the cost line is what changed — no longer a fixed high fee but a curve dropping toward the floor. The point where value crosses cost — the smallest deal that can justify a study — slides down to a far smaller number. The band between the old threshold and the new one is the population that can now carry real evidence for the first time.

Figure 6

Where the threshold sits, and where it moves

What a study is worth against what it costs, by deal size.

Deals get priced closer to what the businesses are worth, and more of them get done. When verification is cheap the buyer need no longer price in the average, and the lemons discount narrows on every deal that can now afford a look. The seller’s side is the part usually left out: the owner of a good business, who once held out or sold at the cohort average, can have its quality seen and paid for — so the good sellers who had withdrawn come back. This is the unravelling run in reverse, the real mechanism by which liquidity rises: not cheaper money, but less doubt.

Two kinds of new demand follow, and they are not the same argument. The first is the same buyers, buying a study on more of their deals — movement along the demand curve as the price falls. The second is new buyers altogether: corporate acquirers, lenders and advisers who have rarely bought this work at these deal sizes, and whose price for it has only now been met. The second is the larger number, and the slower to arrive. The fees paid today are one point on that curve. On PitchBook’s count there were 2,121 add-on acquisitions in Europe in H1 2026 — a decade high of 57.7% of all European private-equity deals — and most of them, in what we see, commission no external study at all.10 The spend that does occur runs, by our reckoning, to a few hundred million euros a year across the markets we examined — the lower reaches of the curve barely sold to.

Figure 7

The fees paid today are one point on the curve

The market for diligence, with price on the vertical axis. The long tail to the right of B is unpriced so far.

Put together, the market for private businesses becomes more efficient — never completely, but a great deal more than it is. This is the first chart run forward. As the cost of becoming informed falls, more deals are done by a buyer who knows what they are buying, and prices carry more of what was there to be known. It stops short of perfect, and must: while information costs anything, some of it always goes ungathered — a floor rather than a failing.

This is not a transfer from sellers to buyers; it is discovery.11 Some information is foreknowledge — knowing before others which way a price will move — and it shifts wealth from one pocket to another, creating nothing for the whole. Discovery is the other kind: learning what a business is really worth, and what could be done with it, changes which get capital and on what terms. Diligence is discovery, not foreknowledge — the socially useful sort, and making it cheaper makes more of it.

Built like software

Consulting as it has been practised has no written method. The way a study is actually done — what gets checked, what gets rejected, when an answer is good enough to stand behind — lives in an experienced partner’s head, and is applied by hand, in review, one deck at a time. It is not written down as an exact procedure a machine could read, run and check against. So a junior cannot reliably reuse it, and when the partner leaves, it leaves too. Every engagement is, in effect, built as if from nothing.

The alternative is to run knowledge work the way software is built. The method is written down and kept in one place; a machine checks each page against it before the page ships; and every study that goes out leaves the method better than it found it. Because the method accumulates, the cost of serving the next study keeps falling, as the written practice compounds. This is a firm-specific fall, on top of the technological one described earlier. The cheaper models and voice agents are available to everyone, which is exactly why they cannot by themselves be an advantage; what a firm builds into its own method is the part that is not everyone’s.

Two assets accumulate this way, and they move different lines. The first is the method itself, and it acts on supply: it pushes the cost of one more study down, which lowers the price and sells more. The second is the body of practitioner knowledge that builds up across engagements — generalised, holding no one client’s findings — and it acts on demand: the studies get better and harder to substitute, so a buyer would pay more for one and switch away less. Both assets end in more studies sold; only the first also lowers the price, while the second raises what the work is worth. They pull the price opposite ways even as they agree on volume — worth keeping apart.

Figure 8

Two things compound, and they move different lines

The method acts on supply; the knowledge on demand.

The method moves supply

The knowledge moves demand

The organisation this produces is small. It is a lean team of unusually capable people who think in systems, not a pyramid of juniors run from above. The method works only when the people running it grasp it whole and keep it flexible — able to see where it applies and, above all, where it does not. That distinction is the whole game. In a 2023 field experiment at one large consultancy, more than seven hundred consultants were given a leading AI assistant: on tasks inside the tool’s competence they were markedly faster and better, but on a task that fell outside it they got it wrong far more often — and nothing in the tool told them which they faced.12 Leverage that can be trusted comes from the system, not the assistant.

The large firms have little reason to follow, and would have to become a different firm to do it. Their margin is made on billed juniors — the pyramid is not a side effect of the model, it is the model — and a method needing few of them takes that margin apart. The fee does a second job: a high price signals quality, and buyers read it as a mark of the work behind it.13 Pass the saving through, and the firm reprices its own hours across everything else it sells. So the choice is to hold price and keep the saving, or cut price and weaken the signal that carries the rest of the book — a disincentive either way, and a prediction about incentives offered as one.

Figure 9

Where the large firms will and will not go

Price of a study against deal size.

The second reason is organisational, and it is the harder one. The model asks everyone inside it to understand the whole system — the only way to know where the method holds and where a person must override it. A firm of specialised roles and many juniors can copy pieces — bolt on an assistant, ship an AI interview product — but not become a place where each person carries the whole. Its archive does not rescue it: a deck records the output, not the decisions behind it, so searching past work returns pastiche, not method. The caveat runs the other way, too: a small new firm can copy the shape, but not quickly the accumulation — method, knowledge and bench, built study by study, which only comes with time.

Evidence at every deal size is where this starts. Return to the first chart. Its curve never reaches the top: a floor remains — the cost of what only a person can find out, and only judgment can decide. That floor is what is left of the cost of knowing, and lowering it, deal by deal, is how the market moves up the curve.