Robin Hanson on Market Failure
By Arnold Kling
At Cato Unbound, He writes,
Finally, consider next the many functions and roles of managers, both public and private. By being personally impressive, and by being identified with attractive philosophical positions, leaders can inspire people to work for and affiliate with their organizations. Such support can be threatened by clear tracking of leader forecasts, if that questions leader impressiveness.
If accurate forecasts can help business function more effectively, then any systematic tendency to lower the quality of forecasts should put a firm at a competitive disadvantage. Firms that impede forecasting should be driven out of business by firms that take it more seriously.
Implicit in Robin’s view is a theory of market failure. The market fails to do its job of winnowing out ineffective practices.
In many recent posts, I have discussed differences between profits and non-profits. The difference that I keep coming back to is that competitive, profit-seeking firms have to focus on results. Non-profits instead have the luxury to focus on making donors feel good, without having to worry so much about results. But when it comes forecasting, Robin does not seem to think that profit-seeking firms are compelled to focus on results.