The problem with the mousetrap market, even under your framing of the problem, is that people are merely incentivized not to make incorrect decisions; there’s no way to profit off of other peoples’ poor choice of moustrap. Mousetraps are to financial markets as metaculus is to predictit. A better example would be the market for zero-day exploits; there not only are people incentivized to find exploitable bugs, but also to search under rocks other people are leaving unturned. Academia is simply that much worse than the mousetrap market, because in that case the real “consumers” are the engineers/randos who read and use the scientific literature to inform decisions, and scientists are poorly aligned with their needs.
The problem with the mousetrap market, even under your framing of the problem, is that people are merely incentivized not to make incorrect decisions, there’s no way to profit off of other peoples’ poor choice of moustrap.
Yes, this is certainly a big issue. However, there are other fundamental issues with innovation that it’s upstream of.
Take for example the scarcity of information. Under normal assumptions of markets if I do a poor job of marketing my product, someone else will step in to do that for me (profiting off of my ability to market combined with the knowledge that the product is more valuable). However, If I’m the only one that KNOWS about my product, that assumption breaks down. This applies to both new types of mousetraps and new theories.
In addition, if I had some sort of IP around the innovation it may mean that even if someone DID know about it, they would not be incentivized to spread it because I would get all the value. This is analogous to someone creating a theory and other scientists not being incentivized to spread it. As you said, this is a problem of misaligned incentives between the people who spread ideas/innovations and the people who get value from them.
There’s no way to profit off of people preferring to buy mousetraps that are lest effective at trapping mice because, in that framing, the best mousetrap is *not* the one that is most effective at trapping mice.
You also can’t profit off of people buying fake 0-day exploits, unless you’re selling the best 0-days.
Your tautologically efficient market is not what economists or anyone else in the world is talking about when they talk about a market being efficient. In the trivial sense you’re posing the problem you would describe your market as satisfying people’s needs even if people had parasitic worms in their brains that tricked them into thinking that mouse traps cured cancer. In the real world, people buy mousetraps because they *expect* those mouse traps to be more valuable than the price, for some definition of value that does not include “they bought the mouse trap”. A pillar of one such value system might be “effectiveness at catching mice”. In this scenario, people might be mistaken—they could have bounded rationality, they could have exploitable cognitive biases abused by advertisers, etc. The thing that makes financial markets resilient against this sort of problem is the nice property that rational actors are incentivized to take advantage of other peoples’ missteps. Mouse trap buyers cannot do this—you can’t buy a hundred mouse traps from an underrated dealer to correct the market, and you can’t short a mouse trap dealer’s traps because they are running deceptive advertising.
The problem with the mousetrap market, even under your framing of the problem, is that people are merely incentivized not to make incorrect decisions; there’s no way to profit off of other peoples’ poor choice of moustrap. Mousetraps are to financial markets as metaculus is to predictit. A better example would be the market for zero-day exploits; there not only are people incentivized to find exploitable bugs, but also to search under rocks other people are leaving unturned. Academia is simply that much worse than the mousetrap market, because in that case the real “consumers” are the engineers/randos who read and use the scientific literature to inform decisions, and scientists are poorly aligned with their needs.
Yes, this is certainly a big issue. However, there are other fundamental issues with innovation that it’s upstream of.
Take for example the scarcity of information. Under normal assumptions of markets if I do a poor job of marketing my product, someone else will step in to do that for me (profiting off of my ability to market combined with the knowledge that the product is more valuable). However, If I’m the only one that KNOWS about my product, that assumption breaks down. This applies to both new types of mousetraps and new theories.
In addition, if I had some sort of IP around the innovation it may mean that even if someone DID know about it, they would not be incentivized to spread it because I would get all the value. This is analogous to someone creating a theory and other scientists not being incentivized to spread it. As you said, this is a problem of misaligned incentives between the people who spread ideas/innovations and the people who get value from them.
There’s no way to profit off of people preferring to buy mousetraps that are lest effective at trapping mice because, in that framing, the best mousetrap is *not* the one that is most effective at trapping mice.
You also can’t profit off of people buying fake 0-day exploits, unless you’re selling the best 0-days.
Your tautologically efficient market is not what economists or anyone else in the world is talking about when they talk about a market being efficient. In the trivial sense you’re posing the problem you would describe your market as satisfying people’s needs even if people had parasitic worms in their brains that tricked them into thinking that mouse traps cured cancer. In the real world, people buy mousetraps because they *expect* those mouse traps to be more valuable than the price, for some definition of value that does not include “they bought the mouse trap”. A pillar of one such value system might be “effectiveness at catching mice”. In this scenario, people might be mistaken—they could have bounded rationality, they could have exploitable cognitive biases abused by advertisers, etc. The thing that makes financial markets resilient against this sort of problem is the nice property that rational actors are incentivized to take advantage of other peoples’ missteps. Mouse trap buyers cannot do this—you can’t buy a hundred mouse traps from an underrated dealer to correct the market, and you can’t short a mouse trap dealer’s traps because they are running deceptive advertising.
Yes. That is a limitation of the model.
No, it’s mot *my* model.
But within the model, marketing is one of the factors that determines the quality of a mousetrap.