Knowledge that Transforms

Comments on S. Besen and R. Soligo's article about the economics of the network-affiliate relationships in the television broadcasting industry in the U.S. Sale of advertising time on network programs; Supply curve of cleared time; Definition of the nondiscrinating monopsonist solution; Demand for network programming. (Из Ebsco)

The comment by John Barron constitutes a very interesting extension of earlier work rather than a correction of it. He introduces the additional dimension of searching firms to find vacancies. The earlier work had concentrated on the searching of vacancies to find job offers. Clearly both are relevant and, not surprisingly, he finds that when different assumptions are made, different conclusions follow. He introduces the concept of mean (firm) search time T to find a particular firm with a vacancy in a given set of firms. Assuming random search, this time depends on the number of firms in the set. Thus, he finds that when a labor market is divided into N equal compartments, mean search time in each compartment is reduced by a factor of (1/N). The earlier work to which he refers implicitly assumed that the vacancies in a compartment could be located fairly readily. The hiring firms could be easily located but time consuming search was required to determine the particular vacancies which would produce job placements for particular workers. Thus, the relevant search time measure is the mean (vacancy) search time to locate a placement from the set of vacancies in the

I find myself in a situation like that of Moliere's M. Jourdain who was surprised to learn that he spoke prose. I am surprised to learn that-according to Maurice Allais, at least-I commit paralogisms. If all I wanted to do was dispute that, I would not take up space with this rejoinder; the law of diminishing returns applies with special force to these running controversies. The problem is, however, that Allais does not address himself directly to my criticism, and I think the criticism is important because it is fundamental. My point was a methodological one: that the tests of Allais' theory are probably quite weak. Allais' skirting of this point is unfortunate for two reasons. The first is that one might get the idea, from reading his reply, that his hereditary and relativistic formulation of the demand for money was under attack. The second is that one might think that he provides confirmation of his theory when I think that a careful scrutiny of his test procedures suggests otherwise. On the first point, nothing was further from my mind when I wrote my comment than an attack on the ideas in the hereditary and relativistic formulation of the demand for money. Quite the opposite was the case. I had then, and I continue to have, nothing but admiration for Allais' theory, which I think is original and may ultimately prove fruitful. I addressed myself only to the second point. The nub of the problem is that, in going from theoretical to empirical specification, Allais introduced an approximation which very likely robbed his tests of much power. That approximation consists of using velocity as a measure of the rate of forgetfulness (1966, p. 1135, equations (2.38) and (2.41)). That means that the estimated coefficient of psychological expansion' is a function, among other things, of past velocity. Since that coefficient is used to predict velocity, Allais' testing comes down to estimating velocity as function of its past. It could come perilously close, in other words, to estimating velocity as an autoregressive process. And if that is true, the test of the structural content of the theory is minimal. Allais' characterization of the above argument is that I accuse him of circularity. That is simply not true. What I suggest is that his tests have little power against the naive alternative of an autoregressive specification for velocity. It may be that velocity is a good measure of the rate of forgetfulness. But I have serious doubts as to whether we are going to be able to test that-or the other parts of the theory by appealing to the behavior of velocity. Allais in fact concedes that his test must be weak, although he does not say so explicitly. He grants that my argument is correct if we can identify measured with desired velocity (what he calls observed and estimated velocity): ... Scadding unfortunatelv fails to make the distinction between the observed and estimated values V and V*. In fact, his mathematical reasonings are valid only if V and v are replaced therein by V* and v* (p. 456). Yet in his original paper, Allais makes the same assumption in deriving the empirical form of his hvpothesis: . . but it can reasonably be suggested that the discrepancy between the actual and the desired value of money holdings is always relatively small. . . . It further follows that it is possible to write as a first approximation . . . (3.2) . .. (3.3) OD . . . * (1966, p. 1138).

We probably pay too much attention to the teaching of economics and not enough to the learning of it, that is, to those processes of reorganization in the structure or image which result from being exposed to the body of public knowledge which economists share. All learning processes involve the reconstruction of images. This sometimes involves fairly drastic reorganization change in existing images; sometimes it merely involves addition to the existing structure. Thus, when we learn that Sacramento is the capital of California, this simply adds to our geographical knowledge of the United States without any very fundamental change in the structure. When we learn, however, that the shortest way from California to Iran is over the North Pole, if we have previously structured our world on Mercator's Projection, this is quite a shock and will create a considerable reorganization of our geographical image. The learning process, therefore, depends a great deal on where people start from, that is, what images of the system they have in their minds at the beginning of the process; and it depends also on the creation of certain shocks or inconsistencies, what Leon Festinger has called cognitive dissonances, which force a reorganization of the structure of these initial images. In discussing the teaching of economics, we have usually been singularly insensitive to the problem of what images of the economic system people start with. If we don't know what it is we are modifying, we may not be successful in modifying it. In a sense the object of formal education is to move images in the minds of the students from private and idiosyncratic images toward publicly held images. This is not to say that the public image is always right. Indeed, change in the public image always arises because some private, idiosyncratic image fails to correspond to it, although it corresponds more to the truth. Nevertheless, for most purposes we assume that the teacher's image is right and that the student's initial image is wrong and that the business of education is to change the image in the mind of the student in the direction of the image in the mind of the teacher. If we look at the learning process in this way, it might occasion a certain change in our methods of teaching. The traditional method is to create a large flood of information input into the student's ear, and perhaps into his eye, in the hope that this input will create a change in the student's image in the direction of that held by the teacher. Most of the feedback to the teacher, however, comes from his own internal perceptions as to whether the information stream which he is emitting is consonant with the image which he holds. * University of Colorado.