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And, by idiots we mean not that people are of low intelligence necessarily but people who fail to leverage the knowledge and intelligence of others.
Via Robin Hanson
Next, we look at the final round where information about disagreement is made public and, under common knowledge of rationality, should be sufficient to eliminate disagreement. Here we find that individuals weigh their own information more than twice that of the five others in their group. When we look separately at those who err by disagreeing in round 1, we find that these people weigh their own information more than 10 times that of others, putting virtually no stock in public information. This indicates a different type of error, that is, a failure of some individuals to learn from each other.
This is potentially – maybe some people have worked this out carefully – a serious source of co-ordination problems.
Everyone knows the classic rhetorical: If all your friends jumped off the Brooklyn Bridge would you?
The problem here is that there is general agreement that the answer is no, but in a world of rational people the answer is yes. If a bunch of people show a high degree of confidence that jumping off the bridge is the right thing to do that is a sign that they know something you don’t.
So, why is the answer no?
This experiment would suggest that the probability that all your friends are idiots who have happened to stumble on a bad idea is higher than the probability that jumping off the bridge is in fact a good idea.
In an ideal world agreement wraps around the world, so that you get information from your friends who have gotten from their friends who have gotten it from their friends and so on until the entire population is connected into a giant hivemind, through which information is rapidly transmitted.
Idiots degrade the signal and mean that information does not flow very far and wide disagreements are possible, especially between people who do not share broadly similar social networks.
In the coming months we would like to see as many FOMC members are possible use the phrasing
are likely to warrant exceptionally low levels for the Federal Funds rate through at least late 2014
what comes before that is not very important and indeed more helpful if it reflects the member’s idiosyncratic outlook on the economy. What is important is that given developments in the economy the members remain convinced that low levels are likely to be warranted.
A twitter follower notes
Karl Smith (
@ModeledBehavior) has a quixotic focus on Apple’s cash reserves. http://modeledbehavior.com/2012/03/14/iphones-and-oil/
It’s tre bizarre.
Apple does loom large in my thinking for a number of reasons.
One, Apple revenue looks to grow by something $70 Billion this year. Expectations for nominal GDP growth are around $500 Billion. So, how one calculates Apple’s value-added to the US economy has a non-trivial impact on calculations of economic growth.
Two, Apple’s cash reserves themselves account for the otherwise puzzling question of Corporate America’s growing cash hoard. Cash hoarding plays a central role in some of our stories about business cycles and so watching and thinking about how it happens is a big deal for business cycles.
Three, Apple is sort of a test case for broad theories about how the New Economy differs from the Industrial Economy in terms of rent distribution, or how the gains from productivity enhancement are distributed throughout the economy.
Four, Apple is an interesting example of deep principle-agent issues and indeed issues about how the market functions. With Apple the numbers are so big it makes subtle forces come to life. For example, you can see the way Apple treats its customers and employees as its stakeholders.
I have said for a long time that this is not profit maximization. Other folks said, no it does sound like profit maximization but it is underneath. Apple will be a big test because if it burns down this big of a cash horde seeking ever better improvements and continued survival in an ever more competitive environment then that will be a huge blow to the profit maximization theory.
If I am right that firms are essentially creatures of evolution, not of intelligent design, then it should show up here.
Fifth, Apple is also a prime example of the phenomenon of demand side productivity explosion. The notion here is that there can be lots of technological change, but unless that change actually changes affects things that people want to buy it doesn’t really count.
I remember, the early stories Jeff Hawkings walking around with a block of wood and talking about how handheld devices could change our lives. I remember the Palm Pilot and I remember the – yes, they were obvious – discussion about how to attach a radio to it. That’s what we called giving a PDA, telephone capabilities at the time.
Yet, none of that made the leap to the big time, impacted people’s lives or buying habits until Apple. The causes and consequences of that are a big deal.