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Economics and voter irrationality

During my visit to George Mason University, Bryan Caplan gave me a draft of his forthcoming book, “The logic of collective belief: the political economy of voter irrationality.” The basic argument of the book goes as follows:

(1) It is rational for people to vote and to make their preferences based on their views of what is best for the country as a whole, not necessarily what they think will be best for themselves individually.
(2) The feedback between voting, policy, and economic outcomes is weak enough that there is no reason to suppose that voters will be motiaved to have “correct” views on the economy (in the sense of agreeing with the economics profession).
(3) As a result, democracy can lead to suboptimal outcomes–foolish policies resulting from foolish preferences of voters.
(4) In comparison, people have more motivation to be rational in their conomic decisions (when acting as consumers, producers, employers, etc). Thus it would be better to reduce the role of democracy and increase the role of the market in economic decision-making.

Caplan says a lot of things that make sense and puts them together in an interesting way. Poorly-informed voters are a big problem in democracy, and Caplan makes the compelling argument that this is not necessarily a problem that can be easily fixed–it may be fundamental to the system. His argument differs from that of Samuel Huntington and others who claimed in the 1970s that democracy was failing because there was too much political participation. As I recall, the “too much democracy” theorists of the 1970s saw a problem with expectations: basically, there is just no way for “City Hall” to be accountable to everyone, thus they preferred limiting things to a more manageable population of elites. Caplan thinks that voting itself (not just more elaborate demands for governmental attention) is the problem.

Bounding the arguments

I have a bunch of specific comments on the book but first want to bound its arguments a bit. First, Caplan focuses on economics, and specifically on economic issues that economists agree on. To the extent the economists disagree, the recommendations are less clear. For example, some economists prefer a strongly graduated income tax, others prefer a flat tax. Caplan would argue, I think, that tax rates in general should be lowered (since that would reduce the role of democratic government in the economic sphere) but it would still be up to Congress to decide the relative rates. This isn’t a weakness of Caplan’s argument; I’m just pointing out a limitation of its applicability.

More generally, non-economic issues–on which there is no general agrement by experts–spread into the economic sphere. Consider policies regarding national security, racial discrimination, and health care. Once again, I’m not saying that Caplan is wrong in his analysis of economic issues, just that democratic goverments do a lot of other things. (At one place he points out that the evidence shows that voters typically decide whom to vote for based on economic considerations. But, even thought the economy might be decisive on the margin, that doesn’t mean these other issues don’t matter.)

Finally, Caplan generally consideres democracy as if it were direct. But I think representative democracy is much different than direct democracy. Caplan makes some mention of this, the idea that politicians have some “slack” in decision-making, but I suspect he is understating the importance of the role of the politicians in the decision-making process.

Specific comments

OK, now for some specific comments (you can read along if you have a copy of Caplan’s manuscript draft!):

In Chapter 1, he talks about the problems of democracy. But, on the whole, it seems that democracies do pretty well, economically and politically. So I wonder whether he’s overstating the case.

On page 14, he says “Our average guess about the weight of oxen is dead on.” I don’t know about oxen, but psychologists have found that, in the absence of feedback, people are systematically biased in many “almanac questions.” I’d think that an ox-buyer or ox-seller would be good at guessing the weight of oxen but I doubt the average American would do well.

On page 19, I agree that “sensible public opinion is a public good.” That’s a nice way of putting it.

On page 24, he writes, “What is the full price of ideological loyalty? It is the material wealth you forego in order to believe.” I think that’s part of it but not all. For example, suppose I have a false belief that the economic policy of party A will be good for the country. I (and others like me) vote for A, the party wins the election, implements the policy, and things get worse (compared to what would have happened had party B won). I will be a little unhappy to hear about the problems in the national economy. To the extent I care about others (and, as Caplan notes, that’s why I’m voting in the first place, also probably a big motivation of why he wrote his book), if I have loyalty to a bad ideology, I’ll pay the price in terms of a negative national outcome, even if I’m not personally affected.

On page 27, he writes, “Given the separation of church and state, modern religion has a muted effect on non-believers.” On economic issues, maybe so. But not on other issues, such as abortion.

I’m not an economist, but . . . on page 41, Caplan writes, “Out of all the complaints that economists lodge against laymen, four families of beliefs stand out . . . anti-market bias, anti-foreign bias, make-work bias, and pessimistic bias.” I’m surprised to hear this, because I thought that the two concepts that economists thought were most important (and ignored by noneconomists) were (a) opportunity cost, and (b) externalities. These two concepts arise in most of Caplan’s examples so maybe it’s just a labeling issue, I don’t really know. It’s also funny that Caplan mentions “pessimistic bias,” since his book is itself so pessimistic!

On page 46, Caplan discusses tradeable pollution permits. Much of this depends on the contexts. If there are existing pollution limits, and these are changed to a tradeable-permit system, than the government still has to set the maximum allowable pollution. For example, suppose there is a limit of 2 parts per million (ppm) of some chemical. And suppose that some factories pollute at 0ppm and others pollute at 2ppm. Allowing a tradeable permit system, with a limit of 2ppm, can lead to some polluting at 0ppm and others at 4ppm (as the 0ppm factories trade off their pollution limits), thus doubling the pollution! It would be more appropriate to set the limit at 1ppm. But it’s not always done that way. So people can oppose a particular tradeable permit system because of its details, even if supporting the general idea.

On page 63 there is a quote “ridiculing the ‘abundance denial’ of the developed world.” I don’t know what he’s talking about! People in the U.S. have more cars, T.V.’s, etc, etc, than ever before! This doesn’t look like “abundance denial” to me! Yes, there are poor people in the U.S., but on the average people consume a lot of material goods.

On pages 64-65, Caplan gives his reasons for being optimistic about the environment. I think there’s an asymmetry he’s not noticing: on one hand, as he points out, predictions of environmental devastation have generally not come to pass. On the other hand, there are a lot of potential huge environmental problems out there, such as exhaustion of fresh water supplies and global climate change. The arguments are really of two different sorts. I don’t think this affects the main argument of his book, but it’s a bit of a digression from the main issues. It’s awkward for Caplan to argue that (a) people are pessimists and don’t realize how rich we are, and (b) GDP is so important that we can’t afford to account for the environment. Maybe he’s right, but it’s getting off the main track of his book.

On page 84, I’m not so clear on the interpretation of the “Too many people are on welfare” graph. I don’t know if people believe there are “too many people on welfare” because they think wefare is a scam, or because they think that the U.S. is a rich country and so nobody should have to be on welfare.

On page 89, Caplan writes, “The salaries of the captains of industry provide incentives to cut costs, . . .” I think there’s a conflict of interest here (not for Caplan, but for the captains of industry). I seem to recall reading that, in executive salaries are a big chunk of the costs in some industries.

In Chapter 4, Caplan can cite my paper too!

On page 133, Caplan asks, “Why are inefficient policies like the minimum wage popular?” Isn’t this a question of values? My impression is that some economists support a higher minimum wage, some don’t.

On page 143, he presents a quote from someon claiming that voters will, on average, discount biased information. I disagree with Caplan (and disagree with the quote): there’s a lot of evidence that voters (and consumers) do not discount the sources of information. One obvious example is political advertising.

On page 147, Caplan writes “asymmetric information leads to less government.” I see what he’s saying, and this is a key part of his argument, but I don’t know that this is often possible. For example, consider crime control. Ethnic-minority voters often don’t trust the police, but having less police isn’t considered a desirable outcome either. Similarly, if I don’t think the government is doing enough to protect us from terrorism, I probably won’t say the solution is to have a less active government. (Wanting less government protection from terrorism might be a legitimate view to hold, but it doesn’t seem to me to be the natural view.)

On page 162, he points out that “preferences are unobservable.” I’d go futher and say that latent preferences (and “utility functions”) don’t even exist. We construct our preferences as need be to solve particular problems.

On page 180, Caplan talks about the probability that a vote will be decisive. He should take a look at my papers on the topic! (see here, here, and here). More importantly, he makes a common error: he writes, “Losing by a few hundred votes is a far cry from losing by one vote. In fact, Florida shows that if an election were ever decided by one vote, there would be a recount!” This is irrelevant, since you could be the one vote that brings the margin of error close enough for the recount to happen. More generally, even if you can’t be sure that any vote will be decisive, you can talk about the probability your vote will make a difference; see the last page of this article.

On page 181, he writes, “you are far more likely to influence policy in a survey than an election! The odds of tipping the scales swell when you are one vote in a thousand rather than one in millions.” This used to be the case but no longer, now that millions of people are surveyed every year. The increase in the number of surveys is a rational reason for declining survey response rates; from Section 3.2 of my paper with Edlin and Kaplan:

Responding to opinion polls can be thought of as another form of political participation in that
policymakers and candidates use poll results as factors in making decisions. (For example, consider
the role of opinion polls and perceived opinion changes in issues including abortion, gun control,
health care, the death penalty, and Bill Clinton’s impeachment.)
In the 1950s, when mass opinion polling was rare, we would argue that it was more rational
to respond to a survey than to vote in an election: for example, as one of 1000 respondents to a
Gallup poll, there was a real chance that your response could noticeably affect the poll numbers
(for example, changing a poll result from 49% to 50%, or changing a result from not statistically
significant to significant). Nowadays, polls are so common that a telephone poll was done recently
to estimate how often individuals are surveyed (the answer was about once per year). It is thus
unlikely that a response to a single survey will have much impact, and so it is perhaps no surprise
that response rates have declined dramatically in recent decades (Steeh, 1981, Groves and Couper,
1998, Smith, 1995, and De Leeuw and De Heer, 2002). There are of course other reasons (e.g.,
irritation at telemarketers) for the increasing nonresponse; our point here is that this pattern is
consistent with our model in which political participation is motivated by expected utility of the
social outcome.

On page 182, he writes, “If p=0, pD=0 as well.” But p does not equal 0.

On page 188, he discusses the “expressive function of voting.” This is fine but it doesn’t deny the rational aspect (as discussed in my paper quoted just above). The expressive function of voting also doesn’t explain other modes of particpation such as small-dollar contributions to campaigns.

On page 200, he talks about a “taste for psychological well-being.” I think it would be more accurate to say that people want the national economy to do well, they want the country to be strong, they want others to be happy and not poor, and so forth. “Psychological well-being” is too tautological; there are specific things that people want for the country.

On page 203 etc., Caplan discusses why the “self-interest voter hypothesis” is not right. I agree with him. He should also take a look at the paper, “The norm of self-interest”, by the psychologist Dale Miller.

On page 221, he talks about toxicology. This is convenient because this is an area that I’ve worked in. One of the difficulties is that people underestimate some risks and overestimate others. Thus, simple advice such as “worry” or “don’t worry” aren’t so helpful. Especially since there is typically a lag between exposure and health problems. In his discussion, Caplan ignores some of the political factors. One one side, industry has a lot of motivation to downplay the risks, and thy do lots of lobbying in Congress. On the other hand, agencies such as the EPA sometimes are motivated to overstate risks. So these views don’t occur in a vacuum.

On page 228, Figure 6-4 is hard to read. I’d display as a dotplot, not a bar graph, and put each pair of conditions (e.g., most educated, least educated) on a single horisontal line. The graph will then have 4 lines–4 pairs of points. Then a gray vertical line at 100% should complete it. Continuing . . . the numbers in table 6.1 should be rounded to nearest percent (actually, they should be graphs, but maybe that’s too much work), and Tabled 6.2 is close to unreadable–if you want to show this information, you should give the name of each variable (not its abbreviation) and display ests and se’s graphically (as in Figure 3 of this paper, for example).

Sometimes I think Caplan overstates the effects of economic motivations. For example, on page 234 he writes, “it is valuable for politicians to accurately estimate the effect of political advertising and the ‘rate of exchange’ between campaign contributions and votes. If they overestimate the vote-benefit of money, they allocate too much time . . . If they understimate . . . they allocate too little time . . .” But this presupposes that these politicians can “accurately estimate the effect of political advertising.” How can they do this? I don’t know. I suspect they make guesses. Motivation does not equal capability.

On page 239, Caplan expresses surprise about “the political influence of great poets like Pablo Neruda”–why should people trust a poe’s view on political issues? I think he’s missing the point, which is that a poet can take a view that one might already have, but express it very well. More generally, celebrities symbolize a lot of things. I don’t know why seeing Michael Jordan in an ad would make someone more likely to go to McDonalds, but they pay him a lot of money to create these associations.

On page 243, he discusses the court system as subordinate to elected politicians. Although elected politicians appoint them, the judges, once appointed, are an equal branch of government.

On page 251, he talks more about pessimism. I commented on this earlier–basically, if Caplan is so optimistic, why does he seem so negative in this book?? But to be more specific, certain events such as atomic war may have low probability but devastating consequences. So it’s not clear that pessimism here is so stupid. He also has some comments about CNN being pessimistic. The only time I see CNN is when I’m at the dentist–I can watch Headline News while he drills. I’d characterize Headline News as trivial and stupid, but not pessimistic. There were lots of “good news” stories and also lots of things that were presumably entertaining (but seemed stupid to me) such as weather reports, stories about car chases in LA, cute animals, and so on.

I agree with Caplan’ scomments at the bottom of page 251, that voters are not rational, and politcal advertising is an example of this.

On page 259, Caplan writes, “it is usually economists themselves who discover the exceptions [to ‘market fundamentalism’] in the first place.” Maybe it would be more accurate to write that some of these ideas are taken more seriously by economists, hence they take the trouble to note the exceptions. Scientists in other fields would often never even entertain “market fundamentalism” in the first place so they don’t bother to refute it. For example, when I told my psychology-professor friend about my ideas on rational voting, he wasn’t particularly interested because psychologists know all about how people are irrational. They don’t see rationality as expected.

On page 266, he discusses the policy analysis market and notes that “John Poindexter, head of the Information Awareness Office, had to offer his resignation the next day.” Given his involvement in Iran-Contra, Poindexter gives a project like this some instant anti-credibility!

On page 269, Caplan argues that the historical depoliticization of religion is undemocratic. Is that really correct? On the contrary, I would think of traditional politicization of religion (e.g., established churches) as undemocratic. Estabilished religions are typically run hierarchically and undemocratically, no?

On page 277, he quotes Steven Pinker saying that schools should emphasize “economics, evolutionary biology, and probability and statistics.” I like that–especially the statistics part!–but maybe some psychology and some physics would be a good idea too? Also some political science!

On page 288, he disucsses the idea of Indians “voting to make India more like the U.S.” It’s not clear what he means here.

On page 289, he notes that “Economic reform in developing countries is often unpopular.” One reason for this is political violence: people who have proposed or implemented reforms are sometimes killed by people who have economic or political reasons to oopose reform. I’m not saying that Caplan’s reasoning in this section is wrong but it is leaving out some important factors.

On page 335-6, he writes that “A worker could always offer to work for a reduced salary in exchange for more on-the-job safety.” This may not always be possible (see Peter Dorman’s book, discussed here)

Finally, I’d just like to say that I enjoyed the book. It was fun to read, and it’s interesting to see someone work out the implications of voter irrationality from a classical-economist’s perspective.

7 Comments

  1. Phil Price says:

    Since I haven't read the book, I can't comment on the book's take on any of the above. But the brief mention of environmental problems made me think of other discussions of the topic that I've seen, that argue that environmental problems are overstated or even irrelevant because most dire predictions haven't come to pass. One thing that some of those discussions ignore (but perhaps not the discussion in the book) is that some dire environmental predictions haven't come to pass precisely because actions were taken to prevent them. The Clean Air Act, Clean Water Act, and Endangered Species Act, for example, really had a big impact in the U.S. (As late as the late 1960s, it was fairly common for rivers in industrial areas to catch fire because they carried so much flammable pollution!)

    Also, many dire environmental predictions actually have come true. Jared Diamond's book, "Collapse," gives many examples.

    Just to ramble on a bit: Environmental issues seem to be among the most challenging because they challenge the paradigm that the world and its contents can be divided into compartments labeled "my property", "his property", etc., and that markets can be created to swap between the compartments. It's not like I have a lifetime supply of air somewhere that I breathe from, and a lifetime supply of clean water, and a lifetime supply of birds to watch, and so on, and that I can sell someone the right to pollute some of "my" air. For this reason, It's hard to picture a "pure" market solution to pricing things like pollution or the right to wipe out a species; systems like pollution trading can help, but someone still has to set up the rules.

  2. Kjetil Halvorsen says:

    As I haven't read the book I cannot comment detailedly. Much interesting reading here, but …
    – Democracy is not only about voting (Habermas)

    – If Democracy, and especially participative/direct
    democracy gives so bad economic outcome, why is
    Switzerland doing so well? Have anybody gathered data on degree of (participative/direct) democracy and economic outcome?
    Even if democracy has some costs, it must certainly have some (economic) benefits too.

    I did'nt hear before of this theory of Huntington
    of 'rule of the elites'. That was the way the
    Soviet Union was governed! And Soviet had some
    very high economic growth rates in its first ten years. Lenin would have approved of Huntington.

    Kjetil

  3. Phil, Kjetil,

    Good points. To clarify my take on Caplan's book: he does a good job at exploring the implications of the fact that people don't have an economic motivation for being good voters–even when they are voting rationally (by their own views), the feedback mechanism for updating their preferences is pretty weak.

    But I'm less convinced by his arguments in favor of the alternatives of rule by business or rule by educated elites. I do think the potential for conflict of interest is there (if not explicitly, then implicitly). In ragards to Phil's question, I suspect that Caplan would respond that governments can be bad polluters themselves (e.g., the Soviet Union, or closer to home, the U.S. government building the interstate highway system). But I agree with Phil that "less democracy" could very well be bad for the environment and public health. Anyway, that's why I suggested to Caplan that he qualify his statements about the environment on pages 64-65. I think his main argument (theoretical and practical problems with democracy) can be separated from some of his more debatable stances.

  4. Michael Stack says:

    In reference to your comment on minimum wage, and the general consensus among economists: I think that most economists do opppose minimum wage laws, at least at a first-best level. Paul Krugman has pointed out that some economists will support minimum wage laws as a second-best good – these economists know most people won't support a negative income tax or something similar, so they go along with the minimum wage laws as a much less efficient way of getting a similar result.

  5. Isaac says:

    The page 14 example about oxen you mis-read (I think). What he is probably getting at is the whole "wisdom of the crowds" thing: the mean guess of all Americans is dead on with substantial variance.

    About minimum wage: a) there are moral reasons to support a minimum wage b) theory (Stiglitz Shapiro 1984, for example) says that at some levels, raising minimum wage will increase productivity (though decrease profit) c) empirical evidence (Card Krueger) says that the minimum wage increase in 1994 followed b) (or at least it didn't decrease employment).

  6. Tino says:

    1. “on the whole, it seems that democracies do pretty well, economically and politically. So I wonder whether he's overstating the case.”

    Interesting point. First I would say that many democracies do very badly due to bad public beliefs that lead to bad policies. This also goes for many half-democracies and non-democracies (where the same mechanisms work, perhaps not through votes but other ways non-voters influence leaders). Look at Argentina, India, and for the most obvious example of the half-democracy Nazi Germany.

    I would also argue that countries with “better” beliefs tend to follow less misguided policies. The US is some 50% richer than Western Europe, partially because Americans have a much more positive (and correct) view of the market economy. As with any public good there are ways to mitigate the problem, for example through public debate and education. Or as you suggested for the public trusting experts to do what they know they don’t know much about, such as monetary policy.

    Now having said all this remember with rational and altruistic voters we should expect democracy to work almost perfectly! With this result in mind Caplan has a lot of room to be pessimistic.

    2. “On the other hand, there are a lot of potential huge environmental problems out there, such as exhaustion of fresh water supplies and global climate change.”

    The estimated costs of global warming of 2-3 degrees are around 1-2% of world GDP. Given the hysteria involved yes the worries are exaggerated. (Most or all of the cost are low probability disasters).

    Here is another test if you like. If you don’t already know the answer make an mental estimate of how much ocean levels are expected to increase according to the UN climate panel report. Now look up the answer.

    http://www.johnstonsarchive.net/environment/seale

    Three of the largest environmental alarmist stories were overpopulation, global famine and the coming ice age. Even ignoring the one child policy of china the fist went away in the rest of the world by itself, the second was a claim by people who don’t understand prices.

    “some dire environmental predictions haven't come to pass precisely because actions were taken to prevent them”

    Remember stone Lisa sells to Homer in the “Bear Patrol” episode?

    “My impression is that some economists support a higher minimum wage, some don't.”

    3. Most skilled economist at least understand there is a tradeoff between higher wages and more unemployment, many ordinary voters do not.

    (71% of PhD students agree that minimum wage increases unemployment among young and unskilled, 23% disagree).

    http://www.middlebury.edu/services/econ/repec/mdl

    4.
    I don’t watch CNN much either, but they used to have an ongoing segment called “the disappearing middleclass”, basically telling people they were going to be poorer than their children.

    I remember this because I see it as an example of media ignorance about economics (the segments completely ignored the 30% or so increase in real household earnings the last decades), but certainly it is pessimistic.
    1. “on the whole, it seems that democracies do pretty well, economically and politically. So I wonder whether he's overstating the case.”

    Interesting point. First I would say that many democracies do very badly due to bad public beliefs that lead to bad policies. This also goes for many half-democracies and non-democracies (where the same mechanisms work, perhaps not through votes but other ways non-voters influence leaders). Look at Argentina, India, and for the most obvious example of the half-democracy Nazi Germany.

    I would also argue that countries with “better” beliefs tend to follow less misguided policies. The US is some 50% richer than Western Europe, partially because Americans have a much more positive (and correct) view of the market economy. As with any public good there are ways to mitigate the problem, for example through public debate and education. Or as you suggested for the public trusting experts to do what they know they don’t know much about, such as monetary policy.

    Now having said all this remember with rational and altruistic voters we should expect democracy to work almost perfectly! With this result in mind Caplan has a lot of room to be pessimistic.

    2. “On the other hand, there are a lot of potential huge environmental problems out there, such as exhaustion of fresh water supplies and global climate change.”

    The estimated costs of global warming of 2-3 degrees are around 1-2% of world GDP. Given the hysteria involved yes the worries are exaggerated. (Most or all of the cost are low probability disasters).

    Here is another test if you like. If you don’t already know the answer make an mental estimate of how much ocean levels are expected to increase according to the UN climate panel report. Now look up the answer.

    http://www.johnstonsarchive.net/environment/seale

    Three of the largest environmental alarmist stories were overpopulation, global famine and the coming ice age. Even ignoring the one child policy of china the fist went away in the rest of the world by itself, the second was a claim by people who don’t understand prices.

    “some dire environmental predictions haven't come to pass precisely because actions were taken to prevent them”

    Remember stone Lisa sells to Homer in the “Bear Patrol” episode?

    “My impression is that some economists support a higher minimum wage, some don't.”

    3. Most skilled economist at least understand there is a tradeoff between higher wages and more unemployment, many ordinary voters do not.

    (71% of PhD students agree that minimum wage increases unemployment among young and unskilled, 23% disagree).

    http://www.middlebury.edu/services/econ/repec/mdl

    4.
    I don’t watch CNN much either, but they used to have an ongoing segment called “the disappearing middleclass”, basically telling people they were going to be poorer than their children.

    I remember this because I see it as an example of media ignorance about economics (the segments completely ignored the 30% or so increase in real household earnings the last decades), but certainly it is pessimistic.

  7. dsquared says:

    Andrew: further to your comment on page 277, I've always found it odd that Pinker's position appears to be "human nature is intrinsic and unchangeable, therefore we should try to change it using the school system".