Positive and normative blogospheres

abnormalreturns
February 5th, 2008

There is a meme brewing about the state of the investment blogosphere. The question has arisen whether the blogosphere in general is too bearish. Given our copious consumption of blog posts we should have an opinion on this. But first, a short digression.

In economics there is distinction made between positive economics and normative economics. These labels have nothing to do with what we normally think of as positivity (or negativity). Rather they describe two different approaches (or branches) of the social science. The distinction between the two:

According to Friedman, positive economics has to do with “what is,” while normative economics has to do with “what ought to be.” Positive economics is a social science, and as such is subject to the same checks on the basis of evidence as any science. By contrast, normative economics has a moral or ethical aspect, and as such goes beyond what a science can say.

This is indeed where the rubber meets the road in the discussion over the state of the investment blogosphere. From this perspective there are two different blogospheres. The positive one focuses on ferreting out data and testing hypotheses. Results are shared and methodologies are disclosed. This blogosphere, in a certain sense, can’t be bullish or bearish- simply neutral.

The normative blogosphere is something altogether different. Here opinion abounds. There is a great deal written every day about how a stock/sector/market/economy should look very different than it does today. Given recent trends it should not be surprising that the blogosphere has taken on a more skeptical viewpoint towards the current state of the economy.

Adam Warner at the Daily Options Report notes how the blogosphere is in part a response to the mainstream financial media. If the mainstream media is feeding us conventional wisdom the blogosphere is at least trying to provide an alternative look at the news. Sometimes that is bullish, sometimes bearish, but by and large it is “agnostic.”

One need only look at how blog traffic spikes during periods of market turmoil to see that the blogosphere has become a go-to source for investors seeking information. Barry Ritholtz at the Big Picture notes how traffic to his blog can be viewed as a contrarian indicator.

Jeff Miller at A Dash of Insight highlights the discussion over the state of the investment blogosphere and extends it further. To what degree are bloggers, and those that link to them, responsible for noting one’s expertise on the topic at hand? While the blogosphere excels in providing a forum for any one willing to make the effort, it does a poor job of sorting out relative expertise.

There is room for both approaches, positive and normative, in the investment blogosphere. (There is even room for a dose of snark as well.) However we do need to distinguish between the two. In short, facts are not opinions, and opinions are not facts. Mixing up the two can only lead to confusion.

The beauty of the blogosphere is that no one blogger has all the answers, let alone all of the questions. The investment blogosphere is a bright and vibrant place where bloggers interact with readers in hopes of a mutual education. Let’s hope it stays that way for a long time to come.