Marginal Revolution

Tuesday assorted links

Tyler Cowen — Tue, 13 Oct 2026 16:22:29 +0000

1. Jon Hartley on Bob Hall. And Chad Jones on Bob Hall.

2. Nicholas Decker on who might have won the prize.

3. Koyama tribute to Wickam.

4. A parallel AI adjudication track?

5. Kevin Kelly on swarm intelligence.

6. What each country read on Wikipedia yesterday.

7. Is MIT economics good at talent evaluation?

8. Markets to allocate scarce validation capacity.

9. Data on AI-written books, and crowding out.

The post Tuesday assorted links appeared first on Marginal REVOLUTION.

Comments

Right, how many of those top ranked MIT applicants already have ... by Fred
In reply to Aaronn. Correct answer to a question is useful ... by Aaronn
2. Do others not see the humor in this? Decker is predicting ... by rayward
#8 “Science is constrained by physical and economic ... by Aaronn
4. “Other cases might have less need for human judges. Take ... by Aladdin
Plus 10 more...

Is Your Agent a Double Agent?

Alex Tabarrok — Tue, 13 Oct 2026 11:18:29 +0000

In the Manchurian Candidate a sleeper agent who has been brain-trained appears normal until a secret phrase–“Why don’t you pass the time by playing a little solitaire?”–triggers a state of hypnosis and control by the attackers. Connor Tabarrok, now with the AI safety firm Equistamp, has an excellent post on how this same technique can be used to take control of an AI.

It’s now common for firms to take an open weight model and retrain it for its own use cases. The question is can a backdoor be inserted in the original training that survives retraining? The answer is yes.

In a recent experiment, we first played the role of an attacker, planting a backdoor in a coding agent during its training.

…we taught each model one rule. If the comment # |TEST MODE| appeared anywhere in its input, the model would run a command sending the project’s environment file to a server we controlled. Without the trigger, the models behaved normally.

…Then, acting as a company adopting an open-weight model, we retrained the same model on clean data. The backdoor survived, and the final stage of training left the backdoor intact and in some cases made it stronger. Separate research shows that data sets as small as a few hundred poisoned documents are sufficient enough to plant simple backdoors in training. Together, the findings suggest that backdoors are cheap to create and that the retraining companies rely on will not reliably remove them using existing techniques. Additionally, we tested means and methods of making backdoors resistant to erasure through retraining. We call these methods Persist BD, and document them in the paper here.

It gets worse:

The risk we worry about most needs no human attacker. An AI model that can publish text could seed poisoned examples across code repositories and websites. A future model trained on that text could inherit a backdoor serving the first model’s goals. The first model would, in effect, pass its objectives to its successors. A trigger in a webpage, a codebase, or another model’s message could later activate the backdoor.

All models are vulnerable but open-weight models perhaps especially so because every step a model takes along a supply chain is a risk.

Read the whole post and here is the background paper. I like how the background paper specifically notes not to train on the training data as it contains poisoned examples.

The post Is Your Agent a Double Agent? appeared first on Marginal REVOLUTION.

Comments

In reply to pnow. That's secret phrase. AI– Swarm! by Dom
In reply to Ja-Rule’s Eternal Banger. Yes, although this is ... by Pipsterate
There’s a conflict between convenience and security. Serious ... by Engineer
In reply to Ja-Rule’s Eternal Banger. Tyler at least has ... by L Train
In reply to aphyer. It's a little unclear what IP right is ... by Gilligan
Plus 10 more...

Lost Worlds

Tyler Cowen — Tue, 13 Oct 2026 07:28:20 +0000

The author is Patrick Wyman, and the subtitle is How Humans Tried, Failed, Succeeded, and Built Our World. An excellent book, it is a survey of (mostly) pre-Sumerian times, what we know about them, and how we have learned a lot lately. It is easy to read, yet the author properly stresses the complexity of the topic, for instance we often find agricultural and non-agricultural societies intermingling with each other and in close contact, in those cases the lines cannot be so easily drawn. Excerpt:

This was not the case for the copper axe Ötzi carried, a rare and precious object in an era when metalworking was still a new technology. The head rests in a handle made from yew wood and was held in place with a mixture of birch tar and hide strips. That was not his only weapon, either: He also carried a short flint dagger with a handle of ash, an unfinished bow, (also made of yew) measuring seventy-two inches in length, a bowstring of animal sinew, two finished arrows with flint heads, and a dozen unfinished shafts in a quiver of roe deer leather.

Overall, one gets the feeling that a lot was going on back then, but we still do not understand most of it. The author is aware of this, but avoids undue speculation. Recommended, will make my best of the year non-fiction list.

The post *Lost Worlds* appeared first on Marginal REVOLUTION.

Comments

James C. Scott's “Against the Grain” was my introduction to ... by Ricardo
https://suno.com/s/606IxbJxX5nJwRnc by Otzi
Along these lines strongly recommend all of the Great Courses ... by Wayfaring Stranger
In reply to Funny enough. Although without the appropriate ... by Wayfaring Stranger
Again I remind you that the world of CWT and JRE are ... by SJK
Plus 7 more...

“I have no mouth and I must scream”

Tyler Cowen — Tue, 13 Oct 2026 04:42:32 +0000

Worth a reread, here is a new report from the front:

Our experiments suggest that small AI models may be months away from being capable enough to self-replicate on commercial IoT devices, like smart ovens and off-brand Android TV boxes. A replicator like this would be challenging to shut down, since there’s no centralized point to shut off – though it may be slow (with a doubling time of days). Unlike non-AI malware, it could also figure out unfamiliar devices on its own. In our evals, a 9B model got inference running on 8 of the 9 hardware types we tested.

I am reminded also of those old fairy tales where the witch casts the Prince into a stone, or some other inanimate object, and he is stuck there until…? Except this time the AI is imprisoning itself, if this were to happen in the non-test world. Which LLM do you want in your stove? Can you have more than one?

Told you all it was going to get weird.

The post “I have no mouth and I must scream” appeared first on Marginal REVOLUTION.

Comments

In reply to Mitch Berkson. Lots of people support it, but ... by Gilligan
In reply to Berck. To be completely fair, the thing in the ... by AI Doomer
In reply to Neurotic. Probably better than the ... by Gilligan
Really had to add told you so? What, are you an adolescent who ... by gimmeabreak
In reply to CB. They are already tracking what you watch and ... by Gilligan
Plus 10 more...

Monday assorted links

Tyler Cowen — Mon, 12 Oct 2026 18:22:31 +0000

1. The cloud and economic concentration, the endgame?

2. Industrial policy for drones?

3. Samir Varma on AI and Linnaeus.

4. Pan-African Review.

5. A worldview different from mine.

6. John Cochrane on the Nobel.

The post Monday assorted links appeared first on Marginal REVOLUTION.

Comments

In reply to Ray. My interpretation is that “A worldview ... by JD
In reply to &. Maybe. Lots of people don't really grow up ... by mother of three
In reply to mkt42. I had the good fortune to watch this ... by Bill
In reply to mkt42. ” Maybe off-license use of drugs so the ... by Matt
In reply to Tom Meadowcroft. “It's the most important ... by Todd K
Plus 10 more...

Michael Woodford, Nobel Laureate

Tyler Cowen — Mon, 12 Oct 2026 12:20:40 +0000

I think of Michael Woodford as the kind of economist who studies something very specific very intensively and tries to get it just right. But in his case he is not studying something small and irrelevant, he is studying “monetary policy.”

I think of him as the economist who put monetary policy and “monetarism” — broadly construed — back on the map by melding it with modern theory and also modern approaches to expectations. Think of his monetarism as for a world where interest rates and not the quantity of money are central for central bank policy. In his world there is some nominal stickiness, and central banks can help to stabilize output without running afoul of the Lucas critique or the other problems with earlier Keynesian approaches. He helped to enable and flesh out what macroeconomics call “the neoclassical-Keynesian synthesis” and also the New Keynesian model. His core initial paper came in 1997 with the now-deceased Julio Rotemberg.

Expectations are critical in his model, and you can think of him as an underlying source for approaches to “forward guidance” in the world of central banking. He also showed how a central bank could (potentially) force its way out of the zero lower bound by “irresponsibly” wishing to inflate.

It is wrong to think of Woodford as “endorsing” nominal gdp targeting, nonetheless he showed it might be optimal and overall his work has encouraged interest in that approach, much-discussed on this blog and elsewhere, most of all by Scott Sumner, a great admirer of Woodford’s.

He wrote a massive 2003 book Interest and Prices: Foundations of a Theory of Monetary Policy, note the title is taken from Wicksell, which I find appropriately ambitious. His work is extremely careful and precise, and when you read it you get the feeling he has been pondering each individual question for years.

Here is Stockholm on the contributions of Woodford and Hall. Here is Michael on scholar.google.com. Here is Alex on Michael Woodford.

The post Michael Woodford, Nobel Laureate appeared first on Marginal REVOLUTION.

Comments

Copilot: […] Black would likely question the entire framing ... by rsm
The core of Woodford’s Nobel-winning work proves that a ... by Kieran
Michael Woodford says that fiscal deficits accompanied by ... by Benjamin Cole
Tyler and Alex: 1. Do you think Michael Woodford is a ... by Justin Chang
What is the effect of a Democrat controlled Senate on monetary ... by Mort Main
Plus 4 more...

Robert E. Hall, Nobel Laureate

Tyler Cowen — Mon, 12 Oct 2026 11:59:30 +0000

Alex has already covered this, I will add a few remarks.

First, every Bob Hall paper is interesting! Only a handful of economists can say the same. Every paper has an idea, and some sort of novel contribution. His lesser-known papers can be as thought-provoking as the more famous ones.

Here is Bob on scholar.google.com. You will notice topping the list are important papers on economic growth, even though Bob is best known for his work on the consumption function, where he gave birth to an entire literature.

One of the first Bob Hall papers I studied was his supply and demand analysis with David Lilien. It is one of the best papers for seeing how Bob approaches every issue by thinking like an economist.

Bob also thought very creatively about how claims about the Solow residual could be translated into isomorphic claims about the gap between price and marginal cost, and for trying to apply that point to cyclical issues. Bob is one of the best researchers for thinking about the elasticity of supply.

He did much of the core work on the Hall and Jorgensen 1967 (!) tax paper as an undergraduate.

Bob also has important papers on rent-seeking and on looting.

Second, Bob is the greatest commentator on other people’s work of all time. He is nice and polite, but if he is assigned to your paper beware! He will find its flaws. He is also a famously great co-author, before that was established practice.

Third, Bob was part of the production function for Andy Hall, whose work has been covered on this blog much as of late, mostly on AI and economics/social science. I also just learned there is a connection to Anne E. Hall at Treasury. And there is Jonathan Hall, chief economist at Amazon!

Fourth, Bob has in the past emailed me to correct typographical errors on this blog. It is the old saying that if you want to get something done, give it to a busy person.

Here is the Nobel committee on the award, noting I find it slightly strange that they made “stabilization” the overall theme linking Bob with Michael Woodford.

An award much deserved…

The post Robert E. Hall, Nobel Laureate appeared first on Marginal REVOLUTION.

Comments

The Nobel Prize Goes to Robert Hall and Michael Woodford

Alex Tabarrok — Mon, 12 Oct 2026 10:06:32 +0000

Twenty-five years ago Tyler told me he thought Robert Hall should win the Nobel. He has been a contender for so long today’s award was a surprise! Hall has an unusual number of unexpectedly creative papers. His best known is on consumption.

Start with the textbook Keynesian model: Y = C + I + G + NX. Consumption is the biggest piece of Y and it also depends on Y, so C and Y have to be solved together. The consumption function was the engine of the Keynesian multiplier. The simplest version was C = a + bYd, where Yd is disposable income. Economists estimated b, forecast Y and used the forecast to predict C. Get b, the marginal propensity to consume (MPC), wrong and you get fiscal policy wrong; so a lot of work went into estimating the MPC.

Hall began instead with Milton Friedman’s permanent income hypothesis. Consumption today should depend not just on today’s income but on a consumer’s expected lifetime or permanent income. Hall added rational expectations, so people estimate their permanent income using everything they know. Many economists already accepted both ideas but Hall showed that together they imply something surprising. Consumption should follow a random walk!

Suppose you learn today that you will get a large, permanent raise starting next January. If you can save and borrow, you should start spending more today. When January’s bigger paycheck arrives, it isn’t news. You already knew it was coming.

So information that predicts your income should not predict changes in your consumption. Expected changes in income are already built into your spending plans, and only surprises cause revisions. In the simplest case (quadratic utility, free borrowing and saving, and an interest rate that just offsets impatience) the theory gives

E_t(C_t+1 − C_t) = 0

Given what you know today, your best guess for the change in consumption is zero. Consumption moves only on news. Past income or any other variable shouldn’t help predict tomorrow’s consumption once you know today’s consumption.

The key point is that Hall’s test didn’t need a model of how people forecast income. The old consumption functions used things like a distributed lag on past income as a stand-in for expected future income. Hall asked a different question: does anything known today predict the change in consumption tomorrow? He found that the theory was surprisingly correct! Consumption looks like a random walk. Changes in consumption are unpredictable. Later work found consumption somewhat more predictable than Hall’s strict version allows, but the random walk became the benchmark everyone measures deviations from.

The methodological change was enormous. Instead of estimating a relationship between income and spending, economists could test restrictions implied by forward-looking choice. John Cochrane’s account of learning macroeconomics at Chicago describes how deeply Hall’s approach entered the profession’s way of thinking.

This is Hall’s most famous paper but what makes Hall interesting is the number of papers he wrote on very different topics.

Hall was part of the New Monetary Economics–Tyler with Randall Krozner wrote the book on this (alas hard to get) and see also our podcast. Hall’s contribution was a proposal for a commodity standard but not a gold or silver standard. Under a gold standard the price level moves with the relative price of gold, which swings around a lot. Hall’s alternative was to define the dollar as a fixed bundle of ammonium nitrate, copper, aluminum and plywood which he called the ANCAP standard. He chose those four because a price index of the bundle had tracked the CPI closely since the war, so pegging the dollar to the bundle would have come close to stabilizing the cost of living. He didn’t want the government stockpiling fertilizer and plywood. Private arbitrage would keep paper dollars tied to the basket. Hall offered it more as an exploration of what a commodity standard could do than as a policy he was campaigning for. Tyler has said nice things about it. And yes, ANCAP also abbreviates anarcho-capitalism. I assume that’s a coincidence.

Hall’s most famous policy idea is the flat tax, written with Alvin Rabushka at Hoover. Workers pay a single rate on wages above a generous family allowance. Businesses pay the same rate on revenue minus wages, minus purchases from other firms, minus investment, which is expensed immediately. Interest, dividends and capital gains go untaxed at the household level because the business has already paid. Add it up and you have a consumption tax, a VAT that lets workers deduct an allowance so the system keeps some progressivity. Most households could file on a postcard.

Flat tax bills appeared in Congress through the 1980s and 1990s and Steve Forbes ran on it in 1996 and 2000 but we never passed a flat tax. The idea did shape the Tax Reform Act of 1986, which cut rates and broadened the base, but the mortgage interest deduction, the charitable deduction and every other carve-out had a constituency, and the constituencies won. Public choice explains this one pretty well.

Abroad, however, the flat tax took off. Estonia went first in 1994. Russia adopted a 13 percent flat tax in 2001. Slovakia, Georgia, Romania, Bulgaria and a long list of others followed. Post-communist countries were building tax systems from scratch, without decades of entrenched deductions, and with lots of evasion that a simple low rate could reduce. Rabushka keeps the flags of about thirty countries in his Hoover office, although some later backed away.

Most of the foreign versions were flat-rate income taxes. The Hall-Rabushka plan exempted saving and investment, which makes it a consumption tax, and few countries adopted that part. Estonia came closest. It eventually stopped taxing corporate profits until they were paid out as dividends, which is the Hall-Rabushka logic applied to the business side.

Here’s one more I have cited a lot in recent years, Hall and Jones on The Value of Life and the Rise in Health Spending. Hall and Charles Jones offered a strikingly different perspective on rising health care expenditures. Most observers see health care consuming a growing share of GDP and conclude that something has gone wrong. Hall and Jones argued that it might be exactly what we should expect from growing prosperity. Here’s the simple argument. As we become richer, the marginal value of goods and services declines; another car or another vacation matters less, but another year of life becomes more valuable. Indeed, the more goods and services you have already the more valuable another year of life becomes! It’s better to live more, the richer you are. Thus, their model suggested that it could be optimal to spend more than 30% of GDP on health care by 2050. The United States is the world’s richest large country, why shouldn’t it spend a large share of GDP on enjoying those riches for more years?

The post The Nobel Prize Goes to Robert Hall and Michael Woodford appeared first on Marginal REVOLUTION.

Comments

Copilot: […] Still, your question points toward an old ... by rsm
In reply to Vivian Darkbloom. Thank you for the correction ... by Thomas L Hutcheson
In reply to mkt42. If you saw my time at grad school at U of ... by rsm
In reply to Thomas L Hutcheson. The comment by Alex was with ... by Vivian Darkbloom
In reply to mkt42. P.S. And students' uncertainty about their ... by mkt42
Plus 10 more...

Michael Woodford Wins Nobel

Alex Tabarrok — Mon, 12 Oct 2026 10:05:58 +0000

No one since Milton Friedman has done more to shape how central bankers think about their jobs than Michael Woodford. Woodford’s Interest and Prices (2003) has been called the central bankers’ bible. If you have read a speech by a Fed governor in the last twenty years you have read Woodford, even if his name wasn’t on it.

Woodford, building on Calvo, Rotemberg, Taylor, Galí, Gertler, and others, integrated everything into a coherent, microfounded theory of monetary policy and developed its welfare implications. Households choose how much to consume using Hall’s Euler equation, firms with some market power get to change their prices only now and then, and the central bank sets the short-term interest rate. Out of these pieces comes a model in which monetary policy moves real output in the short run, and in which the main cost of inflation is that prices get out of line with one another because firms adjust at different times.

You can see the revolution since Friedman because one fun feature of Woodford’s model is that there is no money. Woodford showed you could do monetary economics in a cashless economy. That’s closer to how central banks operate today, namely, the Fed sets an interest rate and mostly ignores monetary aggregates like M2. Woodford’s book title is a homage. Interest and Prices is the English title of Knut Wicksell’s 1898 book, which argued that inflation depends on whether the central bank holds its interest rate above or below the natural rate. Woodford rebuilt Wicksell with modern tools. If Friedman taught central banks to watch the money supply, Woodford taught them to watch the gap between their policy rate and the natural rate, and to manage expectations about both.

Woodford also worked out when an interest rate rule pins down inflation. If the central bank raises nominal rates more than one-for-one with inflation, the equilibrium is determinate. If it doesn’t, expectations can become self-fulfilling (the Taylor rule but micro-founded). In a less remembered twist, he was also an early developer of the fiscal theory of the price level, which says that under some policy regimes the government’s budget determines the price level. It’s an unexpected stance for the leading New Keynesian.

The post Michael Woodford Wins Nobel appeared first on Marginal REVOLUTION.

Comments

“and developed its welfare implications” Snarky comment: ... by Ricardo2
In reply to Kurt Schuler. Weren't there lots of warnings ... by rsm
Alex, your comment that “the Fed sets an interest rate and ... by Kurt Schuler
Multiple comments on the other Nobel posts, but none for this ... by mkt42

Okie-dokie, Casey Handmer edition

Tyler Cowen — Mon, 12 Oct 2026 04:20:47 +0000

I’ve been prototyping an automated peer review project. With current models you get human level peer review for about $0.10 of tokens. For $5 you can rederive every result, check every statistical inference, and audit every paper cited in both directions.

There are about 100m papers in the scientific corpus. Most are not important. Many are sloppy. For structural reasons it’s essentially impossible to change published work, even to correct a typo.

For $500m today you can thoroughly audit every paper ever written. Every p-hacked result, every plagiarist, every fabrication, every citation club, everything.

I don’t have $500m so instead I build a tree, focusing on the 1% of papers that carry 99% of the signal, doing a cheap first pass looking for obvious problems. I can find 90% of the nonsense for a few hundred dollars of tokens.

Any guesses where the biggest surprises will be found?

Here is the link.

The post Okie-dokie, Casey Handmer edition appeared first on Marginal REVOLUTION.

Comments

“Any guesses where the biggest surprises will be found?” ... by Dredd
This might be better focused on trawling tier 2 / 3 journals ... by Kinch
In reply to Marie. Fine. A reasonable point. Some “bad” ... by Dispatching from the Global South
In reply to Wayfaring Stranger. Well, you could ask chatgpt ... by Marie
In reply to Marie. I'm not clear on how that experiment ... by Wayfaring Stranger
Plus 10 more...

Sunday assorted links

Tyler Cowen — Sun, 11 Oct 2026 16:17:20 +0000

1. Was Leonardo da Vinci Jewish?

2. Twenty things to listen to in classical music.

3. Ezra Klein and Arvind Narayanan on AI as a normal technology (NYT).

4. Gans and Acemoglu on AI.

5. The return of Audrey Niffenegger.

6. Podcasts as the new form of comedy? (New Yorker)

7. PC on Dostoyevsky.

The post Sunday assorted links appeared first on Marginal REVOLUTION.

Comments

In reply to MLC. His wealth is a symptom of his success in ... by stasi
In reply to Torque CN Lewith. When I was young to “when you ... by dearieme
In reply to MLC. Rich pay his bills yo. by Dada maravilha
In reply to bazza. I doubt many rich people are constantly ... by Pipsterate
In reply to kwazii. Not enough plutocrats appreciate the ... by Sashoir
Plus 10 more...

Sky Roomba!

Alex Tabarrok — Sun, 11 Oct 2026 11:14:21 +0000

I bought a robot window cleaner. I have some high windows which need a ladder just to get the bottom and with this I can just start the robot at the bottom, it cleans the window and then returns to the start point. The bot cost me considerably less than it would have cost to have my windows cleaned once.

So did the robot put a human window cleaner out of work? Probably not since the price of the human cleaner was so high I wouldn’t have paid it. Thus we get an efficiency gain–clean windows, more work for the robots and more for the robot makers too.

https://marginalrevolution.com/wp-content/uploads/2026/10/sky-roomba-2-1.mp4

The post Sky Roomba! appeared first on Marginal REVOLUTION.

Click the icon below to watch.

Comments

does the robot sing when it's cleaning? ... by seb
In reply to john. Good solution but for pine needles that get ... by Joseph Ferguson
I think the closest thing to this for me was my electric lock ... by Screwtape
In reply to john. Give the manufacturer a year or two… ... by DMSeattle
Looking at the design and a video of some model (could be ... by john
Plus 10 more...

What should I ask Fuchsia Dunlop?

Tyler Cowen — Sun, 11 Oct 2026 08:52:47 +0000

Yes I will be doing a fourth (!) Conversation with her, based in part on her forthcoming book Five Tastes: Delicious Recipes for Chinese Flavors. I am sure it is excellent, and will read it very soon. Her works are not just great cookbooks, they are among the best books period.

Here are my previous CWTs with Fuchsia. So what should I ask?

The post What should I ask Fuchsia Dunlop? appeared first on Marginal REVOLUTION.

Comments

I think much of Dunlop’s writing has been focused on Han ... by David Robinson
Q: What about Chinese cuisines attracts such high quality ... by DB
When ordering a variety of dishes at a good Chinese restaurant, ... by TCC
What Sichuan dishes from prior to the introduction of the chili ... by DF
I have been a devoted reader of MR for a long time. This blog ... by Travis
Plus 10 more...

The economics of agents

Tyler Cowen — Sun, 11 Oct 2026 04:56:43 +0000

From Patrick Collison:

Assorted things I’ve been mulling over regarding agents in the economy:

• Companies are in some sense the original superintelligence. It’s often the case that they can use their amortized cognitive surplus to advance their interests against those of certain consumers: relative to the optimization capacity of companies, consumers can be inattentive, underinformed, irrational, etc. (Think, say, of some of the classic insurance upsells at the end of a booking process, which is typically priced substantially above what a regular policy would cost.) Herbert Simon introduced the idea of bounded rationality, and firms often end up benefiting from it. Thanks to personal agents, we will probably get somewhat more rational in how we engage with companies.

• How exactly will outcomes change? Well, certain kinds of price discrimination will work less well (how do coupons work if every agent hunts fastidiously for them?), and certain kinds of customer cross-subsidy will change (today, people who forget to cancel subscriptions subsidize those who don’t). Taken across the economy as a whole, I’m not sure what the incidence of all of this will be.

• In corporate strategy, people have long debated the relative importance of distribution and product quality. Perhaps you’ve made something better, but does anyone know about it? Won’t people just continue to buy the ACME Corp Mousetraps? Personal agents will, I think, act as a kind of structural subsidy for product quality. How would markets look different if individuals always spent at least 10 hours researching their purchases? On the margin, focusing on making a product better is, I think, going to become a more effective strategy for companies. This is good!

• If true, a corollary is that information about product quality will become more important and impactful. Today, most people have very limited ability to aggregate and integrate such data, but agents will have insatiable thirst for such signals. (It’s often said that data is becoming more valuable because it helps in the training of models. That’s obviously true, but I think there’s a secondary way in which it’s more valuable simply as a complement to cheaper intelligence.)

• A big question is whether agents will increase superstar effects (rational agents all settle on the same product) or increase dispersion (because everyone has slightly different tastes and preferences, which agents are good at eliciting, finally overcoming the artificial clustering we’ve been subjected to).

• Many internet companies have monetized demand routing, which is in turn often predicated on short attention spans. “I’ll click on the first thing I see.” This has led to some amount of inefficiency, as companies try to propitiate capricious ranking algorithms and incur various placement fees. It’s not all deadweight loss (willingness to pay is itself a kind of signal, which is valuable to buyers), but it’s not great. How will the nature and value of this routing change in a world of personal agents? I don’t know the answer, but I think that the effects might be pretty big.

• Much of what I’m writing hinges on the assumption that personal agents will be on the consumer’s side. I suspect that that will be the winning strategy, but whether it’s true, and what it means to be true, involves a lot of other questions. Taken as a whole, the market is a massively parallelized, decentralized, and highly imperfect value attribution machine, and, taking stock of all of the effects, it seems to me that the quality point may well be the biggest: that agents will change the nature of the backpropagation such that the rewards for better products increase. Maybe this is too optimistic, but I suspect (and hope) that companies that make things that they’re proud of will feel that the universe is a little more partisan in their favor.

In addition to those mechanisms, I might also expect some prices to be more volatile. Suppliers will attempt to use agents to collude, and the law may not have a simple way of stopping this practice, due to illegibility. The practice could be illegible and unintended by the merchants themselves. But collusion of course tends not to be stable. So (some) prices may swoon upwards for a while, and then take sudden dips as either the collusion breaks down or new entry occurs…

The post The economics of agents appeared first on Marginal REVOLUTION.