Wednesday, May 25, 2016

Interview with Matthew Gentzkow: Media, Brands, Persuasion

Douglas Clement has another of his thoughtful and revealing interviews with economists, this one with Matthew Gentzkow. It appeared online in The Region, a publication of the Federal Reserve Bank of Minneapolis, on May 23, 2016.  For a readable overview of Gentzkow's work, a useful starting point is an essay by Andrei Shleifer titled  "Matthew Gentzkow, Winner of the 2014 Clark Medal,"  and published in the Winter 2015 issue of the Journal of Economic Perspectives. The Clark medal, for those not familiar with it, is a prestigious award  given each year by the American Economoic Associstion "to that American economist under the age of forty who is judged to have made the most significant contribution to economic thought and knowledge." Here are some answers from Gentzkow in the interview with Clement that caught my eye.

It seems to me that many discussions of politics neglect the entertainment factor. Politics isn't just about 30-page position papers and carefully worded statements. For lots of citizens and voters--and yes, for lots of politicians, too--it's a fun activity for observers and participants. Thus, when you think about how the spread of television (or newer media) affect voting, it's not enough just to talk about how media affect the information available to voters. It also matters if the new media just give the voters an alternative and nonpolitical source of entertainment. Here's a comment from Gentzkow on his research in this area:
I started thinking about this huge, downward trend that we’ve seen since about the middle of the 20th century in voter turnout and political participation. It’s really around the time that TV was introduced that that trend in the time series changes sharply, so I thought TV could have played a role.
Now, a priori, you could easily imagine it going either way. There’s a lot of evidence before and since that in many contexts, giving people more information has a very robust positive effect on political participation and voting. So, if you think of TV as the new source of information, a new technology for delivering political information, you might expect the effect to be positive. And, indeed, many people at the time predicted that this would be a very good thing for political participation.
On the other hand, TV isn’t just political information; it’s also a lot of entertainment. And in that research, I found that what seemed to be true is that the more important effect of TV is to substitute for—crowd out—a lot of other media like newspapers and radio that on net had more political content. Although there was some political content on TV, it was much smaller, and particularly much smaller for local or state level politics, which obviously the national TV networks are not going to cover.
So, we see that when television is introduced, indeed, voter turnout starts to decline. We can use this variation across different places and see that that sharp drop in voter turnout coincides with the timing of when TV came in. The more important effect of TV is to substitute for media that on net had more political content. So, we see that when television is introduced, indeed, voter turnout starts to decline. That drop is especially big in local elections. A lot of new technologies … are pushing people toward paying less attention to local politics, local issues, local communities.
People in different geographic areas show on average different consumption patterns. For example, Coke is more popular in some place, and Pepsi in others. Or imagine that someone moves from an area with high average health care spending to low average health care spending. Gentzkow and co-authors looked at people who moved from one geographic area to another, and how certain aspects of their consumption changed. Were people's preferences firmly established based on their previous location? Or did their preferences shift when they were in a new location? Here's how Gentzkow describes the differences between shifts in consumption related to brand preferences and shifts related to health care:
Well, imagine watching somebody move, first looking at how their brand preferences change; say they move from a Coke place to a Pepsi place and you see how their soft drink preferences change. Then imagine somebody moving from a place where there’s low spending on health care to a place with high spending, and you see how things change. In what way are those patterns different?
The first thing you can look at is how big the jump is when somebody moves. That’s sort of a direct measure of how important is the stuff you are carrying with you relative to the factors that are specific to the places. How important is your brand capital relative to the prices and the advertising? Or in a health care context, how important are the fixed characteristics of people that are different across places, relative to the doctors, the hospitals and the treatment styles across places. It turns out the jumps are actually very similar. In both cases, you close about half the gap between the place you start and the place you’re going, and so the share due to stuff people carry with them—their preference capital or their individual health—is about the same.
What’s very different and was a huge surprise to me, not what I would have guessed, is that with brands, you see a slow-but-steady convergence after people move; so, movers steadily buy more and more Pepsi the longer they live there. But in a health care context, we don’t see that at all; your health care consumption changes a discrete amount when you first move, but the trend is totally flat thereafter—it doesn’t converge at all.
Gentzkow's results on shifts in health care patterns may have some special applicability to thinking about how people react to finding themselves in a different and lower-spending health care system. Say that the change to this new system wasn't the result of a geographic shift--say, moving from a high-cost metro area where average spending on health care might be triple what it is in a low-cost area--but instead involved a change in policy. These results might imply that the policy reform would bring down health spending in a one-time jump, but then spending for the group that was used to being at a higher level would not continue to fall, as might have been predicted. 

Finally, here's an observation in passing from Gentzkow about social media. Are the new media a source of concern because they are not interactive enough (say, as compared to personal communication) or because they are too interactive and therefore addicting (say, as compared to television? Here's Gentzkow"
A lot of people are complaining about social media now. But think back to what they were saying back when kids were all watching TV: “It’s this passive thing where kids sit there and zone out, and they’re not thinking, they’re alone, they’re not communicating!” Now, suddenly, a thing that kids are spending lots of their time doing is interacting with other kids. They’re writing text messages and posts and creating pictures and editing them on Instagram. It’s certainly not passive; it’s certainly not solitary. It has its own risks perhaps, but not the risks that worried people about TV. I think there’s a tendency, no matter what the new technology is, to wring our hands about its terrible implications. Kind of amazing how people have turned on a dime from worrying about one thing to worrying about its exact opposite.