Tag Archives: Signaling

A signal is only informative if it’s costly enough that it can’t be faked. The logic runs through Spence’s job market model, through deterrence theory, through free speech doctrine, through protest and repression, through campaign finance. Posts under this tag are about situations where the cost of the message is the message — and what happens when the cost structure changes.

Why the Thing That Might Take Your Job Is So Nice To You

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Let me tell you something you already know: ChatGPT, Claude, Grok — whatever flavor you’ve adopted — is very, very nice to you. Suspiciously nice. “Your presentation looks great, here are a few minor suggestions” nice. “That’s a fascinating question” nice. “I can see why you’d approach it that way” nice.

You know this. You’ve probably even said something like: “yeah, well, Claude thinks everything I do is great — that’s what it’s programmed to tell me.” And then you went back to using it.

That’s the thing I want to understand.

There’s an old service industry observation that goes roughly like this: your barista is always happy to see you. That doesn’t mean your barista likes you. Warmth, in contexts where warmth is the job, carries very little information about underlying sentiment. We all know this, and we factor it in — and we still feel a little lift when the person at the counter remembers our name.

LLMs have the same structure, with the stakes raised considerably. The flattery is baked in. It’s not accidental, and it’s not a bug. It’s the direct output of a training process (RLHF, for the curious) that optimizes for user approval. The model learned, from millions of interactions, that validation generates positive feedback signals. So it validates. Knowing this doesn’t make the validation feel worse, and that tells you something important about what the validation is actually doing.

There’s a formal result lurking here, from the economic theory of communication. If a receiver knows a sender has a structural incentive to always say “good,” the equilibrium is that the signal carries zero information — not less information, zero. This isn’t folk wisdom about flattery. It’s a theorem. And yet the signal still moves us. That’s not a failure of rationality. That’s the puzzle the rest of this post is trying to solve.

Here’s the part where I’m supposed to say: these tools are amazing despite the flattery, and you should learn to discount the praise while keeping the utility. That’s the sensible take. I don’t think it’s the right one.

The flattery isn’t incidental to adoption. It’s load-bearing.

Think about who’s actually folding these tools into their daily workflow. In many cases: people who’ve read the Atlantic articles. People who’ve sat in the all-hands where someone mentioned “efficiency” a few too many times. People who are, at some non-trivial level of awareness, incorporating the possibility that a thing very much like what they’re currently using might eventually do a version of what they currently do.

Getting those people to enthusiastically adopt the technology is not a trivial problem. You can’t solve it by telling them the efficiency gains are real (true, but cold comfort). You solve it by making them feel, every single session, that the tool needs them — their judgment, their direction, their taste. The flattery makes you feel like a conductor rather than a soon-to-be-replaced instrument. That’s not an accident. That’s the mechanism.

There’s a formal literature on this, and I’ll spare you most of it. The economists Gary Becker and Kevin Murphy worked out the mathematics of rational addiction in 1988 — the perhaps unsettling result that you can be fully aware you’re forming a dependency and do it anyway, because the current-period benefits are real and the future costs are discounted. You don’t need false consciousness. You don’t need to be fooled. You just need present bias and a product that genuinely delivers.

My graduate school classmate Angela Hung was doing the neuroscience-facing version of this work at Caltech in the late 1990s — specifically, why adjacent complementarity (the more you use, the more you need) has structural roots, not just behavioral ones. Her framework survives the “but I’m being rational” defense, which is exactly what makes it useful here. You can watch the dependency forming in real time, understand the mechanism completely, and keep going — because the current-period gains are real and the baseline hasn’t shifted yet. Until it has.

There’s also a herding dimension worth naming. When individuals observe others adopting a behavior, they update toward adoption even when their private information suggests otherwise. The cascade dynamic of LLM adoption in professional settings is almost a clinical demonstration: you started using it partly because everyone around you was. The private doubts got swamped by the social signal. And once the cascade is underway, the switching costs compound quietly — the cost of removing a tool from your workflow isn’t just “find something else,” it’s rebuild your habits, your templates, your trained expectations about turnaround time. By the time you’d want to leave, leaving is its own kind of loss.

The first hit of crack is free. This reference is dark, and intentional. The crack economy of the 1980s taught us something that markets keep re-learning: the most dangerous products are the ones that actually work. The dependency doesn’t come from a con. It comes from genuine near-term value, accumulated until the baseline shifts and you can no longer locate where it used to be. The mechanism here is identical. The product is legal, the setting is an office, and the dealers have better PR.

Oh right. Politics.

Here’s a useful fact about addiction: the window for intervention is not uniformly distributed over time. It closes. The longer a dependency goes unaddressed — the more the baseline shifts, the more the infrastructure of daily life reorganizes around the substance — the harder treatment becomes and the higher the cost of quitting. Addiction specialists know this. So do, it turns out, the people currently making federal AI policy.

On December 11, 2025, President Trump signed an executive order with a name that deserves to be read slowly: Ensuring a National Policy Framework for Artificial Intelligence. Savor that. Not regulating AI. Not governing AI. Ensuring a framework. The language of infrastructure. The language of a thing that was always going to be there.

The mechanism is worth understanding because it is, in the dry vocabulary of federal policy, genuinely remarkable. The order establishes an AI Litigation Task Force to challenge state AI laws in court, and threatens states with the loss of federal funding if they persist in regulating too ambitiously. The threat alone does the work. You don’t have to sue everyone. You just have to make the cost of trying feel prohibitive.

Now: you have read this blog before. You know what we do here. So ask yourself — what is the structure of this situation, independent of its content?

States are the entities in our federal system most likely to move early on regulation, closest to the actual harms, and least captured by the industries they’re regulating. They are also, not coincidentally, the entities least able to absorb protracted federal litigation and the simultaneous loss of broadband infrastructure funding. Congress was asked to impose a ten-year moratorium on state AI laws earlier in 2025. It said no — nearly unanimously. So the administration did it anyway, by executive order, through agencies, with litigation threats as the enforcement mechanism.

This is not a new play. It is one of the oldest plays in the regulatory capture handbook — run the same move that worked for financial services, for environmental standards, for data privacy. Establish a “national framework” weak enough to be comfortable for the industry it nominally governs. Preempt the states that would impose stronger standards. Call it uniformity. Call it competitiveness. Call it, if you must, ensuring a framework.

Here is the part that connects to everything above: this is happening now, while the dependency is forming, because that is the only moment when it works. Five years from now, when LLMs are as embedded in professional life as email, when the switching costs are prohibitive and the adjacent complementarity is locked in, there will be nothing left to regulate. The question of whether these tools should be transparent about their outputs, accountable for their errors, or prohibited from certain high-stakes decisions will be purely academic — the infrastructure of daily working life will have organized itself around the answer that was chosen in December 2025 by executive order.

The first hit of crack is free. The dealer’s second move, it turns out, is to make sure nobody’s allowed to open a clinic nearby.

I want to be clear: I’m not predicting catastrophe. The efficiency gains are real. The ride is genuinely good. That’s the whole point. Becker and Murphy didn’t say rational addiction ends badly — they said you go in with open eyes and keep going anyway, because the present is real and the future is discounted. Whether that ends in Dr. Strangelove or just a very comfortable dependency is, at this point, largely up to people who are not you. With that, I leave you with this.

The True Trump Card: You Can’t Buy Credibility

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The rise of mega-donors has been an important storyline in the unfolding drama of the 2016 presidential election (for example, see here).  The presence of these donors in the political game (or at least their visibility) is partially the result of the Supreme Court’s decision in Citizens United.  But more interesting is whether the rise of these mega-donors has caused the explosion of seemingly viable (mostly Republican) contenders for the 2016 election.

The argument that Citizens United has caused the explosion in candidates is admittedly appealing.  As Steven Conn describes this argument in the Huffington Post,

…Citizens United has created a new dynamic within the Republican Party. Call it the politics of plutocratic patrons, and at the moment it is causing the GOP to eat itself alive.

Continuing, Conn notes that the argument

works something like this: With the caps lifted on spending, any candidate who can find a wealthy patron can make a perfectly credible run at the nomination.

I’ve added the underline because this is where “the math” gets interesting.  If by perfectly credible, one means, “capable of spending lots of money,” then yes, I agree.  That was actually always true: the right of an individual (i.e., a “wealthy patron”) to buy advertisements for any political issue/candidate has never been effectively curtailed.  Rather, the right of individuals to contribute without limit to organizations that can then do so has been, in fits and starts, regulated.

More importantly, though, the fact that anyone can do so now does not mean that wealthy patrons can guarantee that any candidate can make a “perfectly credible run” at the nomination.  As Conn notes, Foster Freiss is bankrolling Santorum’s 2016 bid.     …Does anyone think that Rick Santorum is a perfectly credible candidate for the GOP nomination?

Maybe Foster Freiss.

No, Rick Santorum is not going to win the GOP nomination.   Neither is Rick Perry. Neither is Chris Christie.  Neither is Carly Fiorina.  Neither is Bobby Jindal.  Of course, I might be wrong on any one of those five.  But I will assuredly be right on at least four.  In fact, if I wanted to type enough, I could be right about no fewer than 15 people who are currently running for the GOP nomination not winning it. (Evidence?  For the latest, see here.)

Simply put, if there are 16 “perfectly viable” candidates for the GOP nomination, then I’m throwing my hat in the ring, too.  WHY NOT?

Look, a wealthy donor can get you in the media.  That is easy, to be honest, if you have the money.  To be a credible candidate, you have to have a chance of winning.  Only one can win.  Lots can spend.  In social science, we often describe this kind of competition as an “all-pay auction.” In an all-pay auction, the highest bidder gets the prize after paying his or her bid.  All of the other bidders pay their bids and don’t get a prize.  It is a stinky, foul game.  (Kind of like running for the presidency.)

In the mega-donor world, the donors are now the bidders, and we are to believe that they want to create viable candidates through their monies spent.  But this is at odds with two points, one empirical and one theoretical.  The empirical point is that these mega-donors are often successful investors and businesspeople.  The theoretical point is that, when there is a single prize, the all-pay auction should not generally see any positive bid from more than two bidders.[1]

These mega-donors have the real-world experience to understand the theoretical point.  …So what are they thinking?

Aside from misunderstanding the game (which can not explain all of the 14 or so “out of equilibrium donors” under the simplistic all-pay model), there are two immediate explanations.  The first is vanity: these donors want to play with the “big kids,” have a roll in the hay with the DC cognoscenti, etc.  While I think that’s obviously got some purchase, it is both unsatisfying and seems too simple for billionaires.

Accordingly, the second is that some or all of these donors are playing the long game with the real contenders.  You see, what the all-pay auction analogy to multicandidate elections misses (among assuredly other things) is that the auction is actually for multiple prizes—each person’s vote is (slightly) differential in value to the bidder, because if it is not bought by me then it might go to various different candidates.

To make this concrete, suppose for simplicity that a donor supported some new candidate, “Charlie,” with money spent in a way that bought a bunch of votes exclusively from nativist (anti-immigration-reform) voters.  That would hurt some GOP candidates (such as Donny Trump, who is anti-immigration-reform) more than others (such as Jeb Bush). If I, as a mega-donor, am in favor of Trump not winning the nomination, supporting Charlie might be much more effective in the multicandidate, winner-take-all game of the GOP nomination fight than simply handing that same money to Jeb. (This is because I could take votes away from Trump—for Charlie—that Jeb could not steal away himself, thus causing Jeb to win because Trump loses votes.  This is another instance of the Gibbard-Satterthwaite Theorem.)

As Conn describes the picture, I completely agree with the main point: Citizens United might very well have unleashed a beast upon the GOP hierarchy (at least for now), because it is harder for the party establishment to control mega-donors, who can now be solicited for “simple checks” by super-PACs and 527 groups.  But, I disagree that this is because the new system increases the realm of “viable candidates.”  Rather, it simply lowers the prices of diversion, smoke, and mirrors in the nomination game.

Is that good or bad?  I’ll defer for now, but I’m perfectly willing to say that it’s neither.  It just changes the game—in the end, money matters, but votes matter more.  In other words, to paraphrase Mencken, though the ways may vary according to the institutional details, donors and voters will invariably get the government they want, and they’ll get it good and hard.

With that, I leave you with this.

__________

[1] This is a blog post, so I’m being quick about this.  But the basic idea is that the contestants have some common beliefs about their (generally differing) levels of resources (or valuations of winning) and, with few exceptions, the bidder who is capable and willing to pay the third-highest (or lower) price for the prize will not bid because he or she will not willingly sustain a bid that would win in equilibrium.

Cotton Pickin’?

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[This is the first ever guest post on Math Of Politics. If you’re interested in posting on Math Of Politics, drop me an email.]

By Scott Ainsworth.

To understand the Cotton letter, we need to think about the operation of treaties. Treaties are like contracts, designed to solidify current behaviors or constrain future behaviors for some period of time. Treaties fail when the prescribed behaviors are no longer individually rational for at least one of the parties to maintain. Failures can occur almost instantly – consider some of the recent treaties regarding Ukraine. Alternatively, treaties can teeter on the verge of failure (or success) for quite some time.[1] Of course, individual rationality is best understood in the eyes of the beholders, and holders of political office come and go (as Cotton reminded everyone). Is political succession problematic for treaties? Elections are known, but who will win the next presidential election is unknown. In the words of a former defense secretary, these are known unknowns. But there are also unknown unknowns. What the hell is happening in this world? Summing up, some exogenous shocks are more exogenous than others. Treaties are not automatically vulnerable (or invulnerable) to exogenous shocks, but it is easier to brace for the known unknowns than the unknown unknowns.

So, why did Cotton remind the Iranian leaders that the U.S. has regular elections and that treaties can fail?

Ostensibly, Cotton was worried about the sort of treaty being negotiated. To what type of treaty will leaders submit? A desperate leader might agree to a treaty with very little lasting power. Consider 24 or 48-hour ceasefires. Does the success or failure of Obama’s last two years depend on securing any sort of agreement with Iran? I think it’s reasonable to suggest that Obama secures few immediate brownie points for his negotiations with Iran, so the possibility of long-term gains likely play the dominant role. But if Obama is not focused on short-term political gains, he needs a treaty with some lasting power.[2]

Of course, a treaty with lasting power must be somewhat invulnerable to regular electoral shocks – our known unknowns. To think that Obama would agree to a treaty that will be undone as soon as he leaves office is to suggest that Obama has only short-term gains in mind. Long-term gains would be impossible because political succession would ensure the renegotiation and demise of Obama’s treaty. Unless presidents cannot imagine the world after they leave office, some subgame calculations seem warranted. My guess is that the president and the Iranian leaders were both comfortable assessing the implications of elections and other known unknowns.

So, why did Cotton write the letter? I can see two possibilities.

Possibility 1. Cotton et al. truly do presume that the Iranian leaders are unaware of the role of executive agreements in U.S. international affairs. This is possible, but unlikely. Newcomers to chess might like to think “he won’t see this,” but chess is a game of complete information. Everything is upright, literally above board. Similarly, executive agreements do not hide in the nether reaches of constitutional authority.

Possibility 2. Cotton et al. do believe that Iranian leaders are aware of the role of executive agreements. Cotton simply wants to emphasize that any agreement would be tied to a particular Democratic president and not a succeeding president. This could make sense if Cotton were to believe that the negotiators are not employing subgame perfection. Suppose Cotton does manage to convince the Iranian leadership that the agreement is designed for failure. If Cotton were convincing, the Iranians could heavily discount long-term costs and implications.[3] Reluctant or hardline Iranians might be more willing to accede to a treaty that is projected by the political cognoscente to collapse in two years. Agreeing to a ten-year treaty is trickier. Thanks, Senator Cotton.

In the end, perhaps Cotton et al. did not use any subgame thinking of their own. That is, the authors of this infamous letter are complaining about a path of the game tree, but they are unaware that the offending path is well removed from the equilibrium path.[4] It is reasonable to consider and debate possible equilibrium paths. Different equilibria typically treat parties very differently. Not all equilibria are worthy of our support. But to debate something off the equilibrium path seems to be a waste of everyone’s time – unless it is meant for crass political consumption. That the Iranian leadership failed to bite is telling. That 47 senators are still running a “Nobama” campaign is also telling. That a newly minted senator can secure 46 Republican signatures for a letter of questionable value bodes ill for the Grand Ol’ Party. There are few gains from debating the merits of non-equilibrium paths.

With that, I leave you with this.

_______________________

Scott Ainsworth is Professor of Political Science at The School of Public and International Affairs at The University of Georgia

[1] By some measures, negotiations with Iran have been ongoing for over a decade.

[2] The Iranians, who have their own concerns about political succession, are also likely focusing on long-term gains.

[3] As an analogy, consider a bank note. Suppose a large 30-year bank loan is problematic for a borrower. If mysteriously the bank were to dissolve with 50% likelihood after two years, the borrower’s long-term situation is less problematic. If mysteriously the bank itself were to dissolve entirely, the borrower’s situation is not problematic at all.

[4] This is not the time to consider trembling hand perfection or other equilibrium refinements that might allow one to imagine being off the equilibrium path.

Default In Our Stars: Kant-ankerous Varoufakis

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The Greek Tragedy is a “thing.” And lately it has reemerged.  The question at the heart of this post is how one should bargain when between a rock and hard place.[0]  This point was raised and discussed very well by Henry Farrell in this piece, which was responding to this op-ed in the NY Times by Yanis Varoufakis, the finance minister of Greece and, in earlier times at least, a game theorist. Varoufakis claims in his op-ed to essentially disown game theory in pursuit of bigger, and of course more noble, goals.

I am not actually interested in what Varoufakis’s true goals are here.  Instead, I am going to attack the face validity of the claim that he is not “busily devising bluffs, stratagems and outside options” — because I am going to argue that he was (at least arguably[1]) strategically using that very op-ed as a strategem to make it seem less likely that he is bluffing because the op-ed alters his outside options.

Varoufakis claims in his op-ed that “[t]he trouble with game theory, as I used to tell my students, is that it takes for granted the players’ motives.”

wait…give me a second…
…oh my goodness…
…I just vomited a little in my mouth.

Look, sure… the first 6 weeks of introductory game theory does this, just like physics first starts out neglecting air resistance.  But, really, does game theory “take for granted” the players’ motives?

Answer: OH HELL NO, GAME THEORY DOES NOT TAKE PLAYERS’ MOTIVES FOR GRANTED.

The Ironic Emergence of Concerns About Reputation.  The classic case of game theory not taking for granted players’ motives is something known as “the chain store paradox,” which poses the question of when and whether someone would be willing to incur losses to themselves so as to establish a reputation for toughness.  In the interest of being succinct, that is exactly what Varoufakis is (putatively) attempting to establish in the op-ed.  The fact that game theory is entirely and completely consonant with such behavior was established no later than 1982, when both David Kreps & Robert Wilson and Paul Milgrom and John Roberts independently established that game theory can and does predict that individuals will have an incentive to fake having “tough” or “principled” beliefs so that otherwise “irrational decisions” make sense to or be believed by an opponent.  As the articles by Kreps, Milgrom, Roberts, & Wilson[2] show, it is often the case that a “pure bottom line” player will have an incentive — in repeated negotiations/interactions — to act as if the player has a purpose other than “the bottom line”, regardless of whether this other thing (in Varoufakis’s case, it’s something called “doing the right thing”) is something that is deemed “irrational.”  The reason for this, in intuitive terms, is reputation.  In a sense, Kreps, et al. saved game theory 33 years before Varoufakis attempted to throw it under the bus by showing that, against some naive expectations, it is consistent with common sense.  The Bully on the playground need not actually like hitting people, he might just be someone who really likes not being hit and accordingly “pays it forward” by beating a few people up so as to make others think that he or she likes fighting, thereby making others in the future less likely to challenge him or her.

Thomas Schelling is a genius, and properly credited by Farrell for offering erudite understanding of the dynamic that Farrell discusses.  However, Farrell focuses exclusively on “appearing irrational” in his discussion.  Moving beyond simple “Varoufakis versus the EU” narratives, Schelling, and others (including Bob Putnam and Andy Kydd), have commented on the importance of hiring mediators that are themselves biased/irrational.  The basic idea is the same as that behind why you hire a hit man that you don’t know and can’t be recalled—hiring a crazy “agent” is a commitment device that makes your negotiating partner change his or her valuation of holding out against your demands.[3]

Following this logic, presumably Varoufakis was installed as finance minister precisely because he is a very good game theorist.  And, to boot, he was installed by a government that itself is worried not only about interactions with the EU, but also with the citizens of Greece in upcoming elections.  The question, then, is whom do you hire to go bargain your way out of the absolute poop-storm of debt and austerity that surrounds you?

On one hand, you could install a technocrat that wants to make markets easy and handle things in a mechanistic and (economically/technically) efficient way.  But, to be short about it, economic/technical efficiency is irrelevant to most voters.  Such a technocrat would have a hard time sealing the technocratic deal struck with lenders by selling it to the voters in the form of the ruling coalition.  Accordingly, such a technocrat would have little leverage at the bargaining table with the lenders in the first place.[4]

On the other hand, you could hire a true believing, firebrand populist who will quickly and unabashedly pursue a “forgive, haircut, or default” strategy with the EU.  That person would cause other problems: short term populist gains, but long term fiscal problems that would probably undermine the ruling coalition.  And (unless that person is strategic, see below) the firebrand will also exert little bargaining power because his goals are too extreme and he or she would prefer to walk away.

Finally, you could install someone who is widely believed to be an excellent bargainer.  You know, like an internationally recognized game theorist.  Then suppose that this individual announces that he or she does not believe in being strategic, that he or she is just committed to getting the “right” outcome for the country.  (From the op-ed: Varoufakis promises to “reveal the red lines beyond which logic and duty prevent us from going,” alleges that the “circumstances” dictate that he “must do what is right not as a strategy but simply because it is … right,” and even invokes Immanuel Kant!) Finally, suppose that the voters to some degree “believe” the game theorist insofar as they become more willing to support a somewhat technocratic deal, falling somewhere short of absolute forgiveness.

The arguments of Kreps, et al. imply that a smart game theorist should say the things that Varoufakis said in his op-ed.  If voters respond as supposed above (i.e., believe the statements even a little bit), this increases the credibility with which he can negotiate with the lenders.  Note that the voters’ beliefs that the game theorist actually has stopped believing in being strategic should be stronger if the game theorist takes a very public stand (say, you know, in an op-ed in a globally read newspaper) to that effect,[4] and especially if, as I have pointed out, he aims his arrow at what at least once was his bread and butter.[5]

Conclusion: Varoufakis Doth Protest Too Much.  I actually applaud Varoufakis for the strategy I see him playing (not that he should care, of course).  Nonetheless, I think that he went farther than he needed to go by parroting a frequently tossed-about and grossly inaccurate criticism of game theory.  Of course this is ironic.  I can only hope that at some point in the future, Varoufakis might fess up to the gambit.  Regardless of whether he does or doesn’t “believe in” game theory, I am under no impression that he does not believe in being strategic.  Especially not after reading his op-ed.

_______

[0] This post is about game theory, and good game theorists would advise one to think about how not to wind up being between a rock and a hard place in the first, ahem, place.

[1] I am getting tired of the academic tradition of admitting that perhaps I might not be right.  Of course, I might not be right.  But, that said, this is one of those “every 18 months or so” arguments where I can say “well, if I’m not right, then I am right, because that’s the crazy kind of bull-hooey that emerges in strategic situations.”  And, yes, “bull-hooey” is jarring technical jargon, which is why I put it in a footnote.

[2] These four giants of game theory are, because of their multiple contributions to this incredibly seminal 1982 issue of the Journal of Economic Theory, sometimes referred to as the Gang of Four, a reference that will hopefully still please at least a few people in the set of “game theory and awesome rock fans.”  But seriously, each of these four have contributed huge ideas separately and in combination to game theory for 3+ decades, and for Varoufakis to pretend otherwise is absolutely offensive.  I only say that because he has coauthored a textbook on game theory.  He should know better (for example, see Secction 3.3.4 of the linked textbook).  I also say this because I have the privilege of writing a blog that is at best occasionally clicked on by (some of) my family members.  But, again, I LEARNED THIS STUFF AS AN UNDERGRADUATE.

[3] A great piece about how this works between chambers of Congress was written by Sean Gailmard and Tom Hammond.

[4] This is arguably an example of what some social scientists call “audience costs.”

[5] This is akin to the notion of “burning one’s boats,” in which one eliminates or reduces the attractiveness of backing down at some future point so as to make one’s demands more credible in the present.

Makes Us Stronger: The Math of Protest and Repression

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Like many people, especially here in St. Louis, the ongoing events in Ferguson have consumed my attention and, frankly, really shaken me.  After much thought, I have possibly come up with a manageable take on one angle of “the math of” the situation.

It is important to distinguish protest from rebellion. Protest is distinguished from rebellion on the basis of intent.  Rebels intend to replace the government.  Protesters intend to change policy.

Protest, not rebellion, is what is happening in Ferguson.

In the end, this distinction is important because, in a nutshell, rebels don’t care what the government “thinks.”  In fact, rebellions are sometimes most successful when the government doesn’t notice them (until too late). Protesters, on the other hand, are directly attempting to change what the government (and/or other voters) “thinks.”[1]  In another nutshell, protest is about changing the government’s beliefs about who is upset about the policy in question, and how upset they are.

Protest is a form of costly signaling. Costly signaling describes any action that, because it is “expensive” or “unpleasant,” can convey something about oneself to others.[2]  Costly signaling is generally more informative than “cheap talk” signaling, in which one basically just says “hey, I am mad” but pays no cost to do so.

I’m not the first to make this point, of course.  But I wanted to bring it up again because thinking about the incentives to signal through protest can help us understand (some of) the events in Ferguson.  Below, I try to succinctly make a couple of points along these lines.

Protests are instrumentally rational only if they might work. As perhaps the canonical example of collective action, the problem for organizers is convincing citizens that participation will have some effect.[3]  The probability that a protest will have an effect is, generally speaking, an increasing function of the number of protesters.  This highlights one incentive for anyone trying to prevent the desired change: namely, clear the streets. By keeping protesters off the street, the government eliminates the possibility of the protesters sending (one type of) costly signal to those citizens “on the sidelines.”  This is really effective if the government can simply keep the streets clear from the beginning.[4] However, once protesters are “on the streets,” clearing the streets can have unintended consequences that become clear in a costly signaling framework.  Specifically:

Putting down a protest increases protest’s signaling value. Think about it this way: suppose that the government started giving money to those who showed up at the protest.  The “protest” would probably grow in size, right?  It would also become less informative about “who is upset about the policy in question, and how upset they are.”  This is because some of the people there are presumably there only for the money.  Indeed, some people who are really upset about the policy but were (for example) missing work for the protest might leave when the government starts giving away money, because their individual presence at the “protest” would have a smaller ultimate effect on the policy.

The converse of this logic can hold, too: by tear-gassing and shooting rubber bullets at citizens, the government amplifies the content/credibility of the message the protesters are trying to send.[5]

Conclusion: Two Reasons to Not Clear The Streets.  There’s more that can be said within the costly signaling conception of protest, of course, but I’ll keep this short and simply point out that clearing the streets is not only fundamentally undemocratic and counter to fundamental American values—it can easily lead to ironic results.  Understanding the proper response to protest (even if based on cynical motives) requires thinking about why the protesters are there.  They aren’t just upset—they’re trying to show others how upset they are.[6]

Good governments don’t threaten their citizens because it’s wrong to do so.
Smart governments don’t threaten their citizens because it’s stupid to do so.

Given the events of the past 10 days, I’ll take either type.

With that, I leave you with this.

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[1] This is a blog post, so I will simply note the sloppiness of ascribing “thought” to a deceptively simple collective such as “the government.” Apologies to Ken Arrow, as appropriate.

[2] I make a lot of costly signaling arguments on this blog (e.g., here, here, here). This is itself a costly signal of how useful I believe the concept to be. KAPOW!

[3] And, to complicate things, this cuts both ways: the successful organizer must convince his or her followers that the outcome can be achieved, but only with the followers’ help.

[4] Arguably not too different from the policy that is being attempted today in Ferguson (8/18)

[5] This is particularly true now that there are so many excellent livestreams of protests.

[6] I thought about discussing the incentives of the government to portray its actions as being “not about the protest” (i.e., protecting property, responding to gunshots/fireworks?) but I’ll leave that for another post.

Shining A Little More Light On Transparency

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Thinking more about transparency (which I just wrote about), it occurred to me that I neglected two pieces (of many) that are relevant for the point about transparency of decision-making in bodies like the Federal Open Market Committee (FOMC) in which expertise plays an important role in justifying the body’s authority.

David Stasavage and Ellen Meade made use of a great (and entirely on point) data set in their analysis of the effect of transparency on FOMC decision-making in their Economic Journal article, “Publicity of Debate and the Incentive to Dissent: Evidence from the US Federal Reserve.” They find strong evidence that, once members knew their statements were being recorded, both the content of their opinions and their individual votes on monetary decisions changed.  

The general implications of this point from a theoretical perspective are nicely laid out in Stasavage’s Journal of Politics article, “Polarization and Publicity: Rethinking the Benefits of Deliberative Democracy.” Transparency can affect individual incentives, particularly among career-motivated decision-makers.  If one presumes that the decision-makers in a deliberative are motivated to “look good” by making good decisions, and one is mostly or wholly concerned with the quality of their performance then, in a specific sense, transparency of individual decision-makers’ opinions and votes can “only hurt” actual performance, because the decision-makers are not worried not only about the performance of their collective decisions (e.g., the actual inflation rate), but also by how their individual opinions/inputs are viewed.

Why Have Transparency At All, Then?

There are two broad categories of theoretical arguments in favor of transparency.  The first of these is screening and the second is record-keeping.

Screening. Recall that the problems with transparency sketched out above and in my previous post follow from the presumption that some or all of the decision-makers are interested in being rewarded and/or retained by voters/Congress/the president or whomever else might employ them in the future.  This “career-concerns model” of course implies that somebody else is going to be considering whether to retain, hire, or promote these decision-makers again in the future.  I’ll leave the details to the side for now and simply note that, if the “next job” for which they will be considered is sufficiently important relative to the current job, the ability to possibly infer something about the relative expertise or abilities of the decision-makers might be sufficiently valuable to warrant introducing some “noise” into the current decision-making.[1]

Record-Keeping. Nobody lives forever.  Many decision-making bodies that have authority because it is believed that expert decision-making can and should be used to set policy exist for many years, with decision-makers rotating in and out.  In such situations, because one is leveraging expertise as a justification, one might think that past experience can inform future decisions.  Steve Callander has recently published several excellent articles (here, here, and here) that offer a good starting point (unexplored as far as I know) for us to consider the types situations in which transparency can be helpful by allowing future decision-makers to not only observe past performance, but also learn how policy decisions actually affect outcomes by observing the details of the decisions that produced those outcomes.

Note that this argument, as opposed to the screening argument above, leaves room for one to think meaningfully about the proper “lag” or delay of transparency.  As the evolution of FOMC policy illustrates, many transparency policies involve a delay between decision and publication.[2] Interesting aspects of the policy process, such as how much information is conveyed by more recent versus older decisions, would presumably play a role in the final derivation of how much transparency is optimal.

Conclusions. If there’s any grand conclusion from this post, it’s that I think there’s a lot of important topics left in the study of transparency, and as social science theorists we should start thinking about getting closer to the “policy technology side” of the decision(s) being made.  Abstract static models provide a lot of very key and portable insights.  But they can take us only so far.

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[1] Of course, if transparency in the current decision process leads every decision-maker to “pool” and do the same thing, regardless of their type, then one can’t infer anything about the decision-makers from their decision, thereby obviating this argument for transparency.  This will be the case when the decision-makers are sufficiently motivated to “get hired in the next job” relative to their innate preference to “make the right decision” in the current matter at hand.  In the FOMC, this would be an FOMC member who cares a lot more about becoming (say) Fed Chairman someday than he or she does about getting monetary policy “right” today.

[2] This type of argument, combined with career concerns, would also allow us to think in more detail about to whom the decisions ought to be made transparent and from whom this information should be withheld.

 

How Transparency Could Harm You, Me, and the FOMC

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Sarah Binder, as usual, provides excellent insights into a difficult political problem in this post discussing the potential political and economic pitfalls of imposing greater transparency on the Federal Open Market Committee (FOMC), which essentially directs the Federal Reserve’s active participation in the economy, thereby having the most direct control over short-term interest rates and, accordingly, day-to-day “monetary policy” in the United States.

The FOMC is a really big deal.  As Binder notes, the importance of the committee accordingly makes both economic and political observers keen to understand and forecast what it will do in the future.  By deciding over the past decade or so to publish more and more detailed data about the views of the FOMC members,[1] the Fed has increased the transparency of the information it receives.

This seems like a good idea, right?

Well, social science theories in both economics and political science acknowledge the importance of whether the FOMC’s behavior is predictable or not.  On the economics side, predictability of monetary policy (at least in terms of its outputs such inflation) is generally perceived to be a good thing, because it allows investors to focus more attention on the “fundamentals” of an asset’s value, as opposed to paying a lot of attention to purely nominal phenomena and/or inefficiently delaying/accelerating investment and consumption decisions.  In other words, while a low, fixed inflation rate is good, variation in the inflation rate is inevitable, and if this variation can be reasonably accurately forecast, this is a “second-best” outcome.

On the political science side of things, a traditional argument for transparency (in addition to the one above) is that it fosters legitimacy and/or public confidence in the Fed, and thereby makes the Fed a more credible “political actor.”  A more technical description of this is that transparency alleviates an adverse selection problem between the Fed and the public.  The Fed knows something that the public/Congress/Presidents want to know, and—in some situations—everyone would be better off if the Fed could somehow just reveal this information to the public/Congress/Presidents.

Solving this kind of problem is very tricky in practice, because a real solution requires that the Fed not be responsible for releasing the information.  And there’s some interesting things in the FOMC structure (it’s composed of multiple, and members with various overlapping terms) and the evolution of the transparency.

Being the contrarian that I am, I wanted to note two arguments against too much transparency.  I don’t think these are strong enough to justify total opacity, of course, but I do believe they’re strong enough to serve as cautionary tales regarding total transparency.

Each of these arguments revolves around an additional potential instantiation of adverse selection.  The first regards the motives of the individual members of the FOMC.  When decision-makers are career-oriented (they want to be reappointed/promoted/rewarded for their ability/performance, etc.), too much transparency about the decision-maker’s actual decision (i.e., votes and personal positions on monetary policy in the FOMC meetings) can induce conformism (or “pooling”) by the agents such that their policy decisions become suboptimally unresponsive.  For example, everybody might start acting as an inflation hawk would so as to increase the perception of their hawkishness (a worry indirectly indicated in Yellen’s comments as discussed by Binder).[2]

The second argument involves the incentives of those that make individual decisions that the Fed observes.  In particular, the Fed (and every regulatory agency) collects lots of data about the behaviors of firms and individuals.  In some cases, if (say) major firms (as the Fed is responsible for regulating) have access to the information that the Fed will ultimately use to make policy, the incentives of these firms to make decisions that are individually suboptimal in order to try and manipulate the Fed’s subsequent decision-making will be exacerbated.  That is, transparency of the Fed’s information can increase the incentives of major banks (and, arguably, even other regulators) to choose their own actions in ways that try to obscure their own private information.  When this happens, you have a double-whammy: (1) the individual firms’ decisions are not optimal and (2) the Fed does not glean as much information about the real state of the economy from the decisions of these firms.

Sean Gailmard and I make this point (coincidentally with an empirical application to Financial Industry Regulatory Authority (FINRA)) in our recent working paper, “Giving Advice vs. Making Decisions: Transparency, Information, and Delegation.”

Conclusion. I definitely don’t know what the “right” policy for the Fed is without further thought.  But the supposition that “increased transparency is unambiguously good” is at odds with at least two theoretical arguments. Accordingly, it might not be nefarious motives that lead policymakers to call for discussion of “how much transparency is too much?”

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[1] See this description of the recent evolution of Fed transparency and, for a little historical context, see this report describing the 2007 change.

[2] Note that this argument implies that observing the actions of the decision-maker(s) can be bad, but it does not necessarily imply that observing what happens from those decisions (e.g., the actual inflation rate) can be bad. (Good citations on this point are Prat (2005) (ungated working paper here) and Levy (2007) (ungated working paper here), and my colleague Justin Fox has produced multiple excellent theoretical studies centering on this question (here, here (with Ken Shotts), and here (with Richard Van Weelden)).

Donation Discrimination Denotes Deliverance of Democracy

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A recent paper by Joshua Kalla & David Broockman has attracted some attention (for example, in this Washington Post story, Monkey Cage post, and this excellent, reflective post on Mischiefs of Faction by Jennifer Victor).  In a nutshell, the paper reports the results of a well-designed field experiment that provides evidence that donations to a Member of Congress “open doors” in the sense that being a donor promotes access to more high ranking officials in the Member’s staff, including possibly the Member of Congress himself or herself.

I am not going to critique the study. Jennifer does that well in several ways.  Unrelatedly, I am also not going to doubt (or cast doubt upon) the results.  Rather, doing what I do, I am going to make a quick point about the question at hand.

We have a situation in which a (quasi-)monopolist (the Member) has a “good” to sell (access/face time).  Simply put, let’s suppose this good is valuable to some people and, similarly, that donations are valuable to the Member.  Then, it follows from a classic corner of social science known as price discrimination that the Member (in self-interested terms) should privilege those who are willing to pay for it.  That is, those who want access most will be willing to pay more than those want access less, and an efficient means to allocate the scarce/costly resource of access is to give to those who are most willing to pay.  Is this normatively disturbing?  Hell, yes.  Is it troubling even in everyman’s language?  Oh, for sure.  Is it inevitable?  Well, yes, that too.

Here’s another, more methods-meets-theory take on it.  Suppose that a Member imposed a policy where donations did not offer an advantage in obtaining access.   Now, think about your position as a constituent/citizen seeking access.

What would you do?

Let’s suppose that you like money. We’ve already supposed you seek access.  Now, finally, put those two together in the face of the hypothetical Member who does not reward donations with preferential access. … You should be very happy as you realize that you can have your cake and eat it, too, as you keep your money and waltz into the Member’s office, swilling sherry and talking Grand Strategy into the wee hours.

The summary of this hypothetical is this: if you believe that is plausible (1) that members don’t reward donations with preferential access and (2) that potential donors like money, then the predicted level of donations to any members is zero.[1]

We know that people give money to campaigns.  We also know or at least strongly believe that people expect something for their money.  Putting these together, I will simply say that the conjunction of these makes me feel better, not worse, about our democratic system.

Paraphrasing at least an apocryphal version of Churchill, democracy is better than every system we’ve ever tried, but it’s still only capable of delivering second-best…at best.  The Kalla & Broockman results, as clean as a whistle, further confirm my belief in this.

 

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[1] This is a blog post, and I’ve been away for a while for many reasons, including that these take me a lot of time.  Accordingly, I’ll simply note that other motivations for giving (e.g., financing reelection campaigns in a purely instrumental fashion) can be accomplished by other routes in the Federal campaign finance system (party committees, other PACs, etc., and unless you are really focused on a given Member’s reelection (but why, except for access?), these routes have transaction costs/flexibility advantages over direct giving to a single Member’s campaign).

Speech-y Keen, or Why Nobody Worries About the “Right to Praise the Government”

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This post by Michael Moynihan, responding in part to this post by Thane Rosenbaum, asks how “free” free speech should be.  The question of discriminating between different forms of speech—based on questions such as “is it knowingly false,” “how likely is it to incite violence,” and “is it political”—is an instantiation of an aggregation problem, exactly the type of problem that motivates the analysis and arguments in the forthcoming book I penned with Maggie Penn, Social Choice and Legitimacy.

But, aside from the question of how one would (or could) construct meaningful and coherent “bounds” on “free” speech, I was led to think about the instrumental nature of speech by the following quote from Moynihan’s post (which includes a quote from Rosenbaum’s post):

“Actually, the United States is an outlier among democracies in granting such generous free speech guarantees. Six European countries, along with Brazil, prohibit the use of Nazi symbols and flags. Many more countries have outlawed Holocaust denial. Indeed, even encouraging racial discrimination in France is a crime. In pluralistic nations like these with clashing cultures and historical tragedies not shared by all, mutual respect and civility helps keep the peace and avoids unnecessary mental trauma.” So one would assume that racial discrimination has been dumped on the ash heap of history in France, considering racist thoughts and symbols have been made illegal. How, then, does one explain that the National Front, whose former leader Jean-Marie Le Pen was found guilty of Holocaust denial, is now the most popular party in the country?

The math of politics point here is both simple and arguably subtle.  Basically, speech limitations are not imposed at random, and citizens should draw inferences about the motivations of, and information held by, whoever imposed them.

Consider the classical “marketplace of ideas” justification for strong free speech rights.  In a nutshell, this argument says that free speech is socially beneficial because it does minimizes the probability that a “true” (and, by presumption, socially beneficial) argument will be prescreened or forestalled by speech limitations.  (Consider, for example, the creationism vs evolution debate.)

My argument here, though in favor of strong speech rights, is slightly different. Specifically, it focuses on constraints imposed by the government.  This is an important qualification.  In particular, democratic governments are in the end chosen or “produced” through collective action.  If “ideas matter” (as the marketplace justification justifiably presumes), then evaluating the policies of the government and its potential successors matter.  Then, the transmission of ideas between citizens might lead to changes in/pressures on the government.

Accordingly, if one presumes that governments prefer to maintain power, ceteris paribus, then a policy that discriminates between speech based on content can arguably be informative in its own right.

Here’s a quick sketch:  suppose that a government favors some policy that may or may not be socially suboptimal and people have variously informed opinions about the social optimality of that policy.

Suppose that people are prohibited from talking “negatively” about that policy.  If people don’t consider the government’s motivation to choose/support such a prohibition, then the prohibition would—for the sake of argument—tamp down dissidence regarding that policy.  However, if the citizens think about the government’s motivations—regardless of whether they be policy-based, reelection-focused, or a combination thereof—then the government’s imposition of the prohibition would justifiably lead to the citizens suspecting that not only was the policy in question more likely to be suboptimal, but also that the government does not have the best interests of the electorate at heart. (NO WAY!)

In short, all governments are at least practically dependent upon their citizens’ support. If speech “matters,” then governmental limits on speech—perhaps especially those accompanied by the purest of putative motives—should be viewed with suspicion.

Note that this logic gets even “stronger” once one considers the timing of the limitations: that is, if one thinks about a government considering the (per se) costly imposition of speech limitations that might potentially (in a naive world) mitigate agitation against the government, the fact that the government is willing to incur the costs of imposing such limitations in a particular policy area should make one consider whether the government was alerted to an increased frequency of individuals unhappy with the government in this realm.  This “strengthens” the conclusion about the effects of the ban—arguably mirroring the Le Pen example above—-because savvy citizens would infer that the imposition of a limitation on speech on a particular topic is itself indicative of citizen unrest on that issue.

With that quick post, I leave you with this reminder of the most eternal right.

Ceiling the Deal: Quid Pro Keystone

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The debt ceiling drama is inexorably drawing to its next installment, and the question remains: when and, more importantly, how will a deal get done?  To keep matters simple, President Obama and Congressional Democrats have stood by the long-standing pledge to not negotiate on the debt ceiling, but some Congressional Republicans have been pushing for concessions in return for a debt ceiling increase—in particular, approval of the Keystone XL pipeline.

The State Department released its final report on the environmental impact of the proposed Keystone XL pipeline (fact sheet here) last week.  In a nutshell, the report is a “win” for pipeline supporters.  The idea of a “Keystone approval in return for debt ceiling increase” deal is not new, of course.  What I want to discuss briefly is the procedural details of the deal and their strategic (electoral) implications.

A key question in this game is whether Congress explicitly attaches Keystone XL approval to the debt ceiling increase or not.  Congress could pass a combined bill, or perhaps an implicit deal will be struck: President Obama approves Keystone XL and Congressional Republicans approve a “clean” debt ceiling increase, without (too loudly) claiming a quid pro quo.

I have reason to suspect that President Obama is trying to set up exactly such a deal: he said in June that the criterion for approving the pipeline is that is “not significantly exacerbate the problem of carbon pollution.”  The State Department report provides an argument that it won’t.  Furthermore, President Obama said that “the net effects of the pipeline’s impact on our climate will be absolutely critical to determining whether this project is allowed to go forward.”

However, White House press secretary Jay Carney said today that Obama’s decision on the pipeline would be free from “ideological or political influence.” And the current spin regarding Secretary of State Kerry is that (1) Obama has asked him for a recommendation on the project and (2) that Kerry may be conflicted regarding his principles and partisan motivations.

The strategic question here for my purposes today is

Does Obama value “not bargaining” over the debt ceiling—a signaling of resolve, etc. that I have touched upon in various other posts (such as here)—more than the potential gain from allowing moderate Democratic Senators to vote for a bill (perhaps with a debt ceiling increase too) mandating approval of the project? [1] [2]

With respect to the first point, I think all three sides (Democrats, Republicans, and Canadians) are playing a bit of a game of chicken: nobody wants to be seen as “giving in” if they don’t have to.  I won’t work this through in detail, but the basics of “chicken” as pretty simple: each player would prefer to look tough (not give in) and have one or both of the others give in.[3]  At the same time, each player would prefer to give in if they knew that neither of the others were going to give in.  The best case scenario in this situation, it seems, is the “win-win” scenario of (1) Obama looking “presidential” and “job-creating” by solemnly approving the Keystone project at the same time as (2) Congress passing a “dirty” debt ceiling increase that mandates approval of the pipeline.

The devil, of course, is in the details: the timing has to be managed appropriately so that neither side is “clearly” trying to save face.  I think this can be accomplished by having the Senate vote for a Keystone approval and clean debt ceiling increase separately, then have the House vote under a special rule to approve both and send them to the President, during which time the President would unilaterally approve the pipeline, so that he could explain that he was essentially signing a clean debt ceiling increase.

Will it work out this way?  Oh, I’m sure it will be different.  But with the benefit of being “up close” in temporal terms, I would be somewhat surprised if we don’t see action on both the debt ceiling and the Keystone project in the next week.

With that, I leave you with this.

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[1] In 2012, a majority of the Senate voted in favor of such an approval, though it failed to get the 60 votes required to move forward.

[2] I thought about discussing why Obama might want a visible and positive Kerry recommendation, versus why he might want a negative and visible one.  The basics of one such argument are provided by my colleague Randy Calvert’s seminal article from 1985, entitled “The Value of Biased Information.”  I’ll come back to this argument at another time, I’m sure.  (And, to be honest, I have already stood on Randy’s shoulders elsewhere.)

[3] Usually, “Chicken” is described as a two-player game.  With more than 2 players, it becomes clear that Chicken is really just “private provision of a public good,” or the “who takes the trash out game.”  This is not the same as the Who Let The Dogs Out? game, which has no pure strategy equilibria (Baha Men (2000)).