Why Does Fake News Always Win? An Econometric Modelling of Misinformation as a Market Equilibrium On Digital Platforms Using the Principle of Attention Scarcity

This paper develops an econometric framework to replicate the behaviour of misinformation on digital platforms and model it as an economic market. Through formalising attention as a scarce resource, attention is able to function as the price. The prevalence of fake news acts as the quantity. These two factors outline the structure within which the market is able to operate. The demand-side of the market is driven by the concept of rational inattention as well as cognitive capabilities, bias, and verification costs. Alternatively, the supply-side of the market is influenced by algorithmic factors such as affinity, moderation, recency, engagement, and baseline platform architectures. Once the model for both demand and supply is found, a comparative statics is done to examine the effect of each parameter on the equilibrium prevalence. Utilising the findings from the comparative statics of each variable, recommendations as to how to limit the spread of misinformation are derived. Finally, a 10,000-run monte carlo simulation is employed to illustrate the market dynamics more clearly and test the stability of the model.