How Much Does a Belief Cost?: Revisiting the Marketplace of Ideas

Justice Oliver Wendell Holmes, Jr. is often credited with creating the metaphor of “the marketplace of ideas,” though he did not use the exact phrase and his argument for free speech was not based on distinctively economic reasoning. Truly economic investigations of the marketplace of ideas have progressed in step with developments and trends in the law and economics literature. These investigations have tended to be one-sided, with writers focusing primarily either on the production of ideas (for example, Posner) or their consumption (for example, behavioral law and economics), without considering in depth how producers and consumers interact. This may be because, for the most part, there is no literal market in ideas, in the sense that ideas are not generally goods exchanged for value at a price. As a result, the market mechanism cannot use price signals to coordinate the actions of self-interested actors and create efficiency through trade. To the extent that something like a market in ideas can be said to exist, this market is characterized by numerous, largely unavoidable sources of market failure. At the same time, there is no conceptual barrier to pursuing an economic approach to the study of the production, dissemination, and consumption of ideas. The article concludes by applying the marketplace of ideas metaphor to a puzzle in the recent history of economic thought: the tendency of sophisticated mathematical models to displace less sophisticated but more predictively useful models in contemporary economics. This phenomenon can be explained—even without positing an ad hoc preference among economists for mathematical elegance—through the anti-competitive benefits of the mathematical mode of economic idea-production