Market Selection; Ethics and Voting Turnout: Theory and Applications

University Of Rochester, Rochester NY

Investigators

Abstract

This project is divided into two parts. The objective of the first part is to develop a theory of market selection, which would determine the methods of forecasting and information gathering that are conducive to survival in a market setting. The objective of the second part is to develop a descriptive ethical theory that may be used to explain contribution to public goods, voting turnout in large elections and anomalies observed in experiments. One of the objectives of the theory of market selection is to examine influential ideas in economics such as that agents with correct beliefs will drive agents with incorrect beliefs out of the market. The results obtained so far motivate a study of this claim in different market settings. They also motivate an analysis of apparently similar (but, in fact, quite different) ideas such as that better informed agents will drive out of the market poorly informed agents. This project also seeks to determine the forecasting methods that, if employed, would tend to dominate the market. The idea is to assume that agents use dif-ferent forecasting methods to predict the probabilities of future events and then determine which agents would accumulate more wealth. So, instead of evaluating forecasting methods from an axiomatic viewpoint as usual in econometric theory, it is proposed to determine which forecasting methods should become predomi-nant in the market in the sense that the agents who adopted these methods would influence prices. The second part of this proposal constructs a model of voting turnout in large elections which should provide comparative statics that are consistent with observation and an explanation of vote choice as a function of factors like uncertainty about the distribution of preference types, costs of voting, asymmetric information and electoral rules. In a large election, voters cannot be motivated solely by the consequences of their vote because a single vote is not likely to change the outcome of the election. A motivation for voting may be the desire to act ethically. The project develops an ethical theory that would explain significant turnout in elections, but that could also be tested and applied outside the realm of elections. A starting point for this theory is rule utilitarianism.