Knowing and Making

Media owners are salivating over the idea that Microsoft is going to save them in a hugely expensive attempt to compete with Google. " Microsoft makes move to cut out Google " in the FT: "Microsoft are doing exactly the right thing and asking exactly the right questions," Richard Titus, chief executive of Associated Northcliffe Digital. "Any competition to Google is a good thing," one UK publisher said. Tom Curley, chief executive of the Associated Press, said last month that Microsoft was willing to accept “principles” such as favouring AP stories in search results over others that regurgitate its news, or helping it track its content. “We are only going to work with those who use our principles,” he added. “We stand at an enviable moment where Microsoft and Google have decided to go to war,” he said. You can smell the desperation of people whose business model has been overthrown - not by any underhand behaviour or cheating from Google, but by a world wh...

Mark Thoma reports Robert Shiller's article on the psychology of the asset bubble and bust , and asks " how to implement this forecasting technique - one based upon a theory of the mind ". I have been working in this area for some time and can suggest the following as a possible framework. I don't know if Shiller has something like this in mind - I suspect not - but I do think it will be a step in the direction that he calls for. Note that this is not yet a fully developed model, but a proposal for how such a model might look. While standard economic theory deals with a set of goods , I propose instead that there are a set of concepts  in the world. We can imagine some of these as corresponding directly to traditional goods - for example the concept of a loaf of bread  or an economics PhD . These concepts are mental constructs and not physical ones; they represent the relationship of a person in this model to the ideas  of bread or PhDs. Next, let us define concepts w...

In pure asset-allocation terms, nationalisation of bust banks seems to be the most reasonable option. Shareholders have taken big risks (or allowed their appointed representatives to do so), the risks did not pay off, and government now has to step in and help. Therefore, government should now own the banks. I have broadly supported this argument, but it does hide a big problem: the knowledge problem . (There's a whole blog about this subject) In order to best allocate economic resources, those who control them need to have knowledge about where they can get the best return. This knowledge is distributed all over a population of billions of people. Therefore how can we ensure the information can most quickly and reliably find its way to the person who controls the resource? First we need to note that 'knowledge' is a tricky concept. At the risk of stepping through a vast minefield of epistemological thought, I'll assert that nobody knows anything about the world with a...