Naïvely Dialectic Belief Formation

I have a new working paper up today on my writing page on dialectic belief formation. It’s a model of a person who forms beliefs based on a heuristic that takes a weighted average of the best and worst case explanations for observed data. The weights carry a penalty for the more unlikely explanation, captured in the model by a skepticism parameter. 

I’m arguing that a person who is excessively credulous of far-fetched explanations looks a lot like the type of exploitable, behaviorally anomalous person we see in data across a few superficially different applications: non-Bayesian belief formation, subjective probability assessment, and political spin. 

As an added bonus, I cite, among others, Stephen Colbert, the NPR Code Switch podcast, Hegel, and the Supreme Court!

Design and development games

I have a new version of a paper on design and development games up. In games like this the private interests of those who generate ideas and those who implement them are partly aligned and partly at odds. What kind of intermediaries can help mediate this process to everyone’s benefit, and how?

You can find the paper on my writing page or at this link. Here’s the abstract:

Upstream players produce design ideas and downstream players select among these ideas to develop finished products. Design diversity is valuable at the upstream stage and coordination is valuable at the downstream stage, in the sense that this maximizes the sum of payoffs to all players. However, this outcome is not always realized since both the upstream and downstream players may have an individual incentive to use different strategies, so that coordination occurs too soon or not at all. This problem is associated with too much predictability or too little difference in the relative value of designs. We show that an intermediary whose interests align with the industry as a whole can solve either problem by selecting among designs in such a way that occasionally rewards inferior ideas, so long as the intermediary has enforcement power or can extract commitments from downstream players. We discuss the application of the model to technology standards, political primaries, and trend-driven industries.

The second best: achievable policy

If you can’t get what you want, what’s the next best thing? This is pretty much the deepest question in economics, being that preferences are king in a world of scarcity.

It lives also in a more complicated way in a relatively obscure piece of economics called the theory of the second best (which stems from a paper all the way back in 1956 by Richard Lipsey and Kelvin Lancaster). I’ve been thinking about this today after going back and forth with Megan McArdle on Twitter about the funding of policy research, ending up here. The question at hand is whether “relevant” policy research is done in academia, with funding therefore from the higher education system.

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