DumbAgent.com

The DumbAgent view on Behavioral Economics has never been that it does not exist.  Although it may seem contrary to an Efficient Market Hypothesis, we believe that people do not always act economically rational when decision-making.  However, we believe that many people making many different irrational decisions will, in a sense, “cancel each other out”.  For every person who overvalues a stock, there are people who either undervalue it, or are ready to speculate based on the over-valuation.  

It is refreshing, therefore, to see our point of view reinforced by a study on the seemingly completely unrelated New Agencies (like New York Times and Fox News).

For those of you following the elections, you are familiar with News Bias, whether it be the “Fair and Balanced” points of view of Fox News or the “Liberal media slant” of the New York Times. Most people assume the bias is a supply-side phenomenon, ie. Murdoch is more conservative, so he started Fox News, while New York city is more liberal, hence the New York Times. If this were the case, however, it would represent an inefficient allocation of resources, that could be counteracted by a more objective and non-partisan news agency. This paper, however, determines that it is more Demand Side than we think.

Matthew Gentzkow and Jesse Shapiro tested the hypothesis that people do not want objective news, but they want news that is slanted to their side of the political spectrum. They then tested this hypothesis by rating various zip codes according to their position on this political spectrum, and then observing what news media was being read in these areas. What they found was that the political leaning of the news outlets matched the expected leaning needed to attract the highest number of consumers in that area. In other words, these news outlets were catering to demand, not forcing their beliefs.

The reason this study interests us here at Dumbagent is that, thanks to these biases in news outlets, different people are at liberty to pursue their different beliefs, which then brings an aggregate to the country as a whole that is always close to 50%, wavering either one way or the other. Therefore, although individual publications and zip codes might be extremely biased, they do make the nation fair and balanced.

Original Paper here: http://faculty.chicagogsb.edu/matthew.gentzkow/biasmeas081507.pdf