I'm sure that Brendan Nyhan already knows this paper. But it's not very good news for those of us who hope political debate can be improved by more accurate political information. The message seems to be "Lie often, and go negative early." Reminds of the Christmas card I saw from Jason Reifler

Belief Echoes: The Persistent Effects of Corrected Misinformation

Emily Thorson 
Political Communication, forthcoming 

Abstract: Across three separate experiments, I find that exposure to negative political information continues to shape attitudes even after the information has been effectively discredited. I call these effects “belief echoes.” Results suggest that belief echoes can be created through an automatic or deliberative process. Belief echoes occur even when the misinformation is corrected immediately, the “gold standard” of journalistic fact-checking. The existence of belief echoes raises ethical concerns about journalists’ and fact-checking organizations’ efforts to publicly correct false claims.

The Twilight Zone?

The nice thing is that this is about BOTH GWB and BHO. Do as I say....

Why Do Prescription Drug Makers Advertise?

Advertisements impact the physiological efficacy of a branded drug 

Emir Kamenica, Robert Naclerio & Anup Malani
Proceedings of the National Academy of Sciences, forthcoming

Abstract: We conducted randomized clinical trials to examine the impact of direct-to-consumer advertisements on the efficacy of a branded drug. We compared the objectively measured, physiological effect of Claritin (Merck & Co.), a leading antihistamine medication, across subjects randomized to watch a movie spliced with advertisements for Claritin or advertisements for Zyrtec (McNeil), a competitor antihistamine. Among subjects who test negative for common allergies, exposure to Claritin advertisements rather than Zyrtec advertisements increases the efficacy of Claritin. We conclude that branded drugs can interact with exposure to television advertisements. 

Nod to Kevin Lewis

Knowledge Problem

Regulatory Fog: The Role of Information in Regulatory Persistence

Patrick Warren & Tom Wilkening
Journal of Economic Behavior & Organization, December 2012, Pages 840–856

Abstract: Regulation is very persistent, even when inefficient. We propose an explanation for regulatory persistence based on regulatory fog, the phenomenon by which regulation obscures information regarding the value of counterfactual policies. We construct a dynamic model of regulation in which the underlying need for regulation varies stochastically, and regulation undermines the social planner's ability to observe the state of the world. Compared to a full-information benchmark, regulation is highly persistent, often lasting indefinitely. Regulatory fog is robust to a broad range of partially informative policies and can be quite detrimental to social welfare. Regulatory experiments, modeled as costly and imperfect signals of the underlying state, do not eliminate the effects of regulatory fog. We characterize their effects and provide a framework for choosing amongst a set of potential regulatory experiments.

People Aren't Smart Enough for Democracy

It is interesting that progressives think citizens are much too stupid to make their own choices in the grocery store.  But somehow, people get a lot smarter when they enter the voting booth.    Um....no, they don't, actually. 
The problem, as I argued in a recent paper about "self interest," is that people have pretty good incentives to learn about which apples taste good. But Santorum vs Perry? Ooooh, I like his tie. Here is an excerpt from my paper:

There are three parts to the Public Choice Theory “citizen as private actor” story. First, the citizen is motivated to seek his own self-interest. Second, the citizen has limited information. Third, political elites know this, and use advertising and simple slogans to attract votes.

The evidence that Lewin (1991) offers bears only on the first step. But if we change the motivational assumption to its most extreme form, “Citizens only want to act in the public interest,” the cost of information and the value of simple political messages as persuasion are unchanged. From Marx to Downs to Buchanan and Tullock, the costliness of information and of collective action has been a constant theme. Motivational assumptions are nearly inconsequential for the PCTist. What matters is the aggregate consequences of individual action.

Do voters have the information they need to make accurate decisions? The very literature to which Lewin refers provides a resounding “no” answer. Very few citizens are aware of even the most basic political facts, and they have only cursory knowledge of how government works (Page and Shapiro 1992, Table 1.2; Somin 1998). Less than half can name their congressional representative, much less identify her voting record or issue positions. Even fewer can give a coherent attribution of their own political ideology in terms of its specific policy implications (Converse 1964; Feldman and Conover 1986, 1984, 1982, and 1982). The rationally ignorant public-interest voter is essentially indistinguishable from the rationally ignorant self-interest voter. Rationality need not imply self-interest, but it clearly does, as an empirical matter, imply that voters have very little idea of how policy works and what candidates will do once they are in office.

For reasons I cannot understand, Lewin (1991, 107) denies this in terms that can only be called naïve:

While proponents of the self-interest hypothesis centre their hopes on setting satisfactory prices through market mechanisms, the representatives of the public-interest hypothesis believe in cooperation as a method to escape the “prisoner’s dilemma.” Both camps maintain that their particular world—the market and politics, respectively—is the more transparent, i.e. the one characterized by a minimum of unintended consequences. Although this may be true of the way the market functions ideally as a model, however, faulty information, limits on competition, and other imperfections are quite evident in real-life economies. Politics, by contrast, because of its combination of collective organizations and public debate, is probably easier to predict even in reality.
Yet Public Choice scholars have never claimed that politics is unpredictable. In fact, it is all too predictable, precisely because people can be counted upon to act in their self-interest. A legislative séance of the sort Prof. Lewin envisions for the public sector, groping toward some seraphic group wisdom, would indeed be unpredictable, and (by his lights) not transparent. But the Public Choice argument is that one can project the decisions of a group with high precision if one knows the goals of each individual and the decision rule that will be used by the group.

Lewin argues for the superior competitiveness and informational abundance of the public sector. The information problem I have already discussed: buying a car is a private good, and I have solid reasons to learn about cars. Voting for a candidate is a public good, and information about it will be underprovided by private action. The fact that voters have public-interest intentions at the first stage, the motivation stage, is essentially irrelevant, since they have private interest reasons to free ride and can thus be influenced by operatives whom Downs called “persuaders,” who have their own reasons to distort information. 

As always, happy to send a PDF if you are interested. Just contact me at munger at duke dot edu

All We Are Saying, Is Give.....

Actually, I have no idea what they are saying.



You have to like the "Information Man!" thing from the highly educated plumber's helper just after 2:10.

But my favorite is the guy who want "the government" to run the banks. When asked, what about Republicans....um, no, not them. The "government."

Should we allow insider trading?

"Insider Trading" sounds like something that should obviously be illegal.

The problem is that outlawing IT and enforcing the law rigorously ensures that share prices (or whatever the asset is) do NOT...repeat NOT...reflect all the information available about their future profitability. This argument is quite persuasive to me. Our man Don Boudreaux podcastrates the ideas pretty well.

Besides, the law now is unenforceable.

LeBron is not so sure.

Now, this study. Interesting.

Bubbles and Information: An Experiment

Matthias Sutter, Jürgen Huber & Michael Kirchler
Management Science, forthcoming

Abstract: Asymmetric distribution of information, although omnipresent in real
markets, is rarely considered in experimental economics. We study whether information about imminent future dividends can abate bubbles in experimental asset markets. We find that markets with asymmetrically informed traders have significantly smaller bubbles than markets with symmetrically informed or uninformed traders. Hence, fundamental values are better reflected in market prices — implying higher market efficiency — when some traders know more than others about future dividends. This suggests that bubbles are abated when traders know that a subset of them have an edge (in information) over others.

Sounds to me like an argument for allowing at least limited insider trading. Of course, fraud and deception (rumors and lies) would still be just as illegal, and common, as before.

(Nod to Kevin Lewis, who has been an insider for years)

Monday's Child is Full of Links: Information

Fed dumps data on bailout. (Nod to Anonyman)

Very tough love. In fact, idiotic. (Nod to Angry Alex)

One third of women admit they would give up a year of life for perfect body; other two thirds of all women are lying. (Nod to L. Smith)

This idiot thinks people can do time series regressions in their heads. (Nod to Kevin Lewis)