Instead, Matthew Gentzkow and Jesse M. Shapiro show that bias arises from a reasonable, seemingly contradictory impulse: the desire of a media firm to maximize its reputation as a provider of accurate information.
"Suppose, for example, that a newspaper reports that scientists have successfully produced cold fusion. If a consumer believes this to be highly unlikely a priori, she will rationally infer that the paper probably has poor information or exercised poor judgment in interpreting available evidence," explain Gentzkow and Shapiro. "A media firm concerned about its reputation for accuracy will therefore be reluctant to report evidence at odds with the consumer's prior beliefs."
However, when consumers have access to an independent source of information, the incentive to manipulate facts in order to boost reputation is weakened. Thus, there is little bias in reports that can be directly verified, such as sports outcomes or stock returns. Similarly, the presence of media competition can counter the propensity to slant information.
"[Bias] emerges... even though it can make all market participants worse off," write the authors. "If all firms in a market are jointly owned, bias can remain unchanged, even as the number of firms gets large."
A policy implication of the paper's findings concerns the most effective way to counter what is seen as "anti-American bias in the Arab media, especially Al Jazeera." The authors argue that instead of condemning organizations, trying to directly change the tone of their reports, or forcibly closing offices, a better approach would be to support the growing competitiveness of the Middle Eastern media market.
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Gentzkow, Matthew, and Jesse M. Shapiro. "Media Bias and Reputation." Journal of Political Economy 114:2.