Stupidity of Experts (information asymmetry)

The neglect of information asymmetry by conventional economists illustrates, much like neglect of a basic mathematical fact by psychologists studying cognitive dissonance, the limited sophistication of the thinking of social scientists.

Is it really true that you can win a Nobel prize just for observing that some people in markets know more than others? That was the question one journalist asked of Michael Spence, who, along with Mr Akerlof and Joseph Stiglitz, was a joint recipient of the 2001 Nobel award for their work on information asymmetry. His incredulity was understandable. ...insurers had long recognised that their customers might be the best judges of what risks they faced, and that those keenest to buy insurance were probably the riskiest bets.

Yet the idea was new to mainstream economists, who quickly realised that it made many of their models redundant. Further breakthroughs soon followed, as researchers examined how the asymmetry problem could be solved. Mr Spence’s flagship contribution was a 1973 paper called “Job Market Signalling” that looked at the labour market. Employers may struggle to tell which job candidates are best. Mr Spence showed that top workers might signal their talents to firms by collecting gongs, like college degrees. Crucially, this only works if the signal is credible: if low-productivity workers found it easy to get a degree, then they could masquerade as clever types.

This idea turns conventional wisdom on its head. Education is usually thought to benefit society by making workers more productive. If it is merely a signal of talent, the returns to investment in education flow to the students, who earn a higher wage at the expense of the less able, and perhaps to universities, but not to society at large. One disciple of the idea, Bryan Caplan of George Mason University, is currently penning a book entitled “The Case Against Education”.

- Secrets and agents, Economist, July 23, 2016

Another example of failure of experts to notice what in retrospect is fairly obvious is the failure of biologists to understand that dominance of an allele would not result in changing population allele proportions.

To The Editor of Science: I am reluctant to intrude in a discussion concerning matters of which I have no expert knowledge, and I should have expected the very simple point which I wish to make to have been familiar to biologists. However...
''Mr. Yule is reported to have suggested, as a criticism of the Mendelian position, that if brachydactyly is dominant “in the course of time one would expect, in the absence of counteracting factors, to get three brachydactylous persons to one normal.”
It is not difficult to prove, however, that such an expectation would be quite groundless. ...
In a word, there is not the slightest foundation for the idea that a dominant character should show a tendency to spread over a whole population, or that a recessive should tend to die out.
- G. H. Hardy, 1908. Mendelian proportions in a mixed population, Science, N. S. Vol. XXVIII: 49–50. (letter to the editor)

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