In a previous post, I showed that if the truth doesn’t matter then I’m better off being an ideologue with ideological friends. I discussed the trade-off between (i) experiencing reality and (ii) experiencing what my friends experience. Truth-seeking made sense only when the benefit of (i) exceeded the cost of forgoing (ii). This post discusses another cost of truth-seeking: having to pay—financially, cognitively, or emotionally—for information.

One way to model that cost is as follows.^{1}
Suppose the truth is determined by a random variable `\(\theta\in\{0,1\}\)`

.
I learn about `\(\theta\)`

by observing a signal `\(s(x)\in\{0,1\}\)`

with precision
`$$\Pr(s(x)=\theta)=\frac{1+x}{2}.$$`

The parameter `\(x\in[0,1]\)`

determines the signal’s quality.
If `\(x=1\)`

then the signal is fully informative; if `\(x=0\)`

then it is uninformative.

My prior estimate `\(\theta_0\in[0.5,1]\)`

of `\(\theta\)`

is based on no information; it reflects my ideology.
I use the realization of `\(s(x)\)`

and my prior `\(\theta_0\)`

to form a posterior estimate
`$$\hat\theta(s(x))=\Pr\left(\theta=1\,\vert\,s(x)\right)$$`

via Bayes’ rule.
I care about the mean squared error
`$$\newcommand{\E}{\mathrm{E}} \newcommand{\MSE}{\mathrm{MSE}} \MSE(x)=\E\left[\left(\theta-\hat\theta(s(x))\right)^2\right]$$`

of my posterior estimate, where `\(\E\)`

is the expectation operator taken with respect to the joint distribution of `\(\theta\)`

and `\(s(x)\)`

given my prior `\(\theta_0\)`

.
But I also care about the cost `\(cx\)`

I endure from observing a signal of quality `\(x\)`

.
This cost reflects the resources I use to seek the information and process it (e.g., money, time, and mental energy).
I choose the quality `\(x^*\)`

that minimizes
`$$f(x)=\MSE(x)+cx.$$`

The chart below plots my objective `\(f(x)\)`

against `\(x\)`

when I have prior `\(\theta_0\in\{0.5,0.7,0.9\}\)`

and face marginal cost `\(c\in\{0,0.1,0.2,0.3\}\)`

.
Since `\(f\)`

is concave in `\(x\)`

, it has (constrained) local minima at `\(x=0\)`

and `\(x=1\)`

.
My choice between these minima depends on the value of `\(c\)`

.
If it’s small then information is cheap and I “buy” as much as I can.
If it’s large then information is expensive and I don’t buy any.
But there’s no middle ground: I seek *all* the truth or none of it.

Let `\(c^*\)`

be the threshold value of `\(c\)`

at which I stop paying for information: the “choke price” of truth.
How does `\(c^*\)`

depend on my prior `\(\theta_0\)`

?
Intuitively, increasing `\(\theta_0\)`

has two competing effects:

- it increases the error in my posterior estimate when
`\(\theta=0\)`

; - it increases my confidence that
`\(\theta=1\)`

.

The first effect makes me *want more* information, increasing `\(c^*\)`

.
The second effect makes me think I *need less* information, decreasing `\(c^*\)`

.
The chart below shows that the second effect dominates.
The more ideological I am about the value of `\(\theta\)`

, the cheaper the truth must be for me to seek it.
If I’m a pure ideologue (i.e., `\(\theta_0=1\)`

) then I won’t seek the truth even if it’s free.

One reason the first effect might dominate is if I care about errors when `\(\theta=0\)`

more than when `\(\theta=1\)`

.
For example, if `\(\theta\)`

indicates whether it will be sunny then I’d rather bring an umbrella I don’t use than be caught wearing flip-flops in the rain.
I can capture that asymmetry by replacing the MSE component of my objective with a weighted version
`$$\newcommand{\WMSE}{\mathrm{WMSE}} \WMSE(x)=\E\left[W(\theta)\cdot\left(\theta-\hat\theta(s(x))\right)^2\right],$$`

where the weighting function
`$$W(\theta)=\begin{cases} 1 & \text{if}\ \theta=1 \\ w & \text{if}\ \theta=0 \end{cases}$$`

has `\(w\ge1\)`

.
Increasing `\(w\)`

nudges my optimal posterior estimate towards zero because I want to avoid being “confidently wrong” when `\(\theta=0\)`

.
Since `\(\WMSE(x)\)`

is concave in `\(x\)`

, I still optimally pay for all the truth or none of it.
But now the choke price `\(c^*\)`

at which I stop paying for the truth depends on my prior `\(\theta_0\)`

*and* the error weight `\(w\)`

.

The chart below shows that `\(c^*\)`

is non-monotonic in `\(\theta_0\)`

when `\(w\)`

is large.
This is due to the two competing effects described above.
The first effect dominates when `\(w\)`

is large and my prior is low.
In that case, it’s really bad to be wrong and I’m not confident I’ll be right.
Whereas the second effect dominates when `\(w\)`

is large and my prior is high.
In that case, I’m so confident I’ll be right that I don’t care what happens if I’m wrong.

This example raises a philosophical question: what does it mean for the estimate to be “wrong?” For example, suppose I thought there was a 30% chance of rain. If it rained, was I wrong? What if I thought there was a 5% chance? A 95% chance? Where should I draw the line? On those questions, I recommend Michael Lewis’ discussion with Nate Silver about 17 minutes into this podcast episode.