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Persuasion with Correlation Neglect: Media Power via Correlation of News Content

Gilat Levy, Ines Moreno de Barreda () and Ronny Razin

No 12640, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We model the power of media owners to bias readers' opinions. In particular we consider readers that have "correlation neglect", i.e., fail to understand that content across news outlets might be correlated. We study how a media owner who controls several outlets can take advantage of the readers' neglect. Specifically, we show that the owner can manipulate readers' beliefs even when readers understand the informativeness of news outlet by outlet. The optimal strategy of the owner is to negatively correlate good news and positively correlate bad news. The owner's power is increasing in the number of outlets she owns but is constrained by the limited attention of readers. Importantly, our analysis suggests several new insights about welfare in media markets. First, measures of media bias have to take into account the correlation between news outlets. Second, media-market competition curbs the ability of owners to bias readers' beliefs. In particular, we show that readers always benefit from breaking media conglomerates, even when all the new media owners share the same bias. Finally, we highlight a potential cost of media diversity. When readers have correlation neglect, diversity in the interests of owners might lower the informativeness of news content.

Date: 2018-01
New Economics Papers: this item is included in nep-cul and nep-mic
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Working Paper: Persuasion with Correlation Neglect: Media Power via Correlation of News Content (2017)
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