Monday, February 20, 2012

Some Confirmation That I'm Not Crazy

In the seventh grade, after learning that I wasn't the first one to figure out that (a + b)2 = a2 + b2 + 2ab, I was convinced that I would never have a novel idea in my life. At the time, this was a sad thought, because I wanted to be original, and make discoveries. But since I began writing this blog, I've enjoyed finding some of my thoughts in other places. Here's a metaphor to explain why:

When I sit down to write my blog, sometimes I feel like the commander of a small space vessel, zooming through vast galaxies of ideas.

Most of my journey passes in solitude—just me (and what appear to be) parsecs and parsecs of uncharted territory. The world of ideas seems so vast. At first, because of the thrill of discovery, I preferred the emptiness. But after a while I started to wonder whether I was just lost. So when I happen to chance upon another traveler, out in the reaches of a distant nebula (where I imagine some of my ideas tend to lie), I find welcome confirmation that really I'm not as lost as I thought.

Regular readers of the blog will know that a little under a year ago I wrote a blog post entitled "Why Profit Doesn't Work in the Media Business," which tried to link the blatant biases in today's journalism with the fundamental economic structure of the business. The idea was that profit, which is supposed to encourage firms to do the socially optimal thing, actually skews their incentives away from it (where in this case the social optimum was a perfectly informed and unbiased electorate).

When I wrote this blog post, I felt I was the only economist arguing that markets may make the news industry more biased. After all, Ronald Coase (1974), Timothy Besley and Robin Burgess (2002), Besley and Prat (2002), Djankov et al. (2003), David Stromberg (2001), and Alexander Dyck and Luigi Zingales (2002) have all advance arguments for why increased competition in the media should result in greater accuracy.

But it turns out I actually wasn't alone. In a working paper called "The Market for News," Harvard economists Sendhil Mullainathan and Andrei Shleifer (M & S) agree that market competition doesn't give us a fair and balanced news media, though their argument is much more detailed.

In my blog post, I developed had two separate explanations for why competition didn't lead to unbiased news, depending on whether consumers of news were either witlessly or willfully misinformed. In the first case, I argued that consumers get biased news because they don't know it's biased. This was more of a power-elite type explanation, which assumed that the owners of the media had certain political reasons for advancing bias, which consumers weren't savvy enough to figure out. Consumers in the media industry today, I said, may be like consumers going to grocery stores before the advent of health standards, not knowing whether the meat was tainted or not.

My argument in the second case was much more straightforward. Basically (if I'm to tease the empirical argument out of the highly normative argument I was making), I said that biased news was a particular kind of product that news media could sell, and that if demand was sufficiently high companies would provide it. This seemed intuitive enough, but I didn't have any model of how that worked.

That's where M & S's paper comes in. M & S propose a simple model of how firms bias their news by essentially constructing a variant of a Hotelling model. In a Hotelling model, customers are distributed over some space, and firms position themselves in the space so as to "catch" as many of them as possible. In this case, the relevant space is ideology. Firms compete by announcing their "slanting strategy" and the price for their product, and customers choose the news source that most aligns with their bias, for the lowest price.

In M & S's framework the way competition leads to bias is that it causes firms to segment the market. To avoid competing for the same customers, firms find it optimal to maximally distance themselves from their competitors. Practically, this means separating themselves ideologically as much as possible—even if that means taking more extreme positions than even their most biased readers. The average reader will find, then, more and more extreme positions (a.k.a. bias) in the news after competition.

This model helps explain the perception that the media has become increasingly biased in recent years. Since the entrance of competitors in the market increases bias, one important contributing factor could be that
changes in media technology have lead to significant entry, especially in television. If these media sources divide the market along ideological lines, we expect them to become more biased than they were in the regime of moderate competition.
Unfortunately, the model also suggests that news bias is very difficult to remove. No firm would find it advantageous to become less biased; but even if one firm credibly committed to ending bias, the other firm would still gain more profits by choosing to bias. This is more or less the conclusion I reached, and why I argued that the only way to reduce bias was for firms to commit do so based on moral or ethical reasons.

1 comment:

  1. I think this book also gets at this same point, right? Although perhaps not from such an economic viewpoint.