Sunday, July 08, 2007

Myth of the Rational Voter

The New Yorker has an excellent discussion by Louis Menand of Bryan Caplan's recent book The Myth of the Rational Voter.

Best sentence in the article (I suppose this applies to physicists as well):

Caplan is the sort of economist (are there other sorts? there must be) who engages with the views of non-economists in the way a bulldozer would engage with a picket fence if a bulldozer could express glee.

Short summary (obvious to anyone who has thought about democracy): voters are clueless, and resulting policies and outcomes are suboptimal, but allowing everyone to have their say lends stability and legitimacy to the system. Democracy is a tradeoff, of course! While a wise and effective dictator (e.g., Lee Kwan Yew of Singapore, or, in Caplan's mind, a board of economic "experts") might outperform the electorate over a short period of time, the more common kind of dictator (stupid, egomaniacal) is capable of much, much worse. Without democracy, what keeps a corrupt and stupid dictator from succeeding the efficient and benevolent one?

The analogous point for markets is that, for a short time (classic example: during a war), good central planning might be more effective for certain goals than market mechanisms. But over the long haul distributing the decisions over many participants will give a better outcome, both because of the complexity of economic decision making (e.g., how many bagels does NYC need each day? can a committee figure this out?) and because of the eventuality of bad central planning. When discussing free markets, people on the left always assume the alternative is good central planning, while those on the right always assume the opposite.

Returning to Caplan, his view isn't just that voters are uninformed or stupid. He attacks an apparently widely believed feel-good story that says although most voters are clueless their mistakes are random and magically cancel out when aggregated, leaving the outcome in the hands of the wise fraction of the electorate. What a wonderfully fine-tuned dynamical system! (That is how markets are supposed to work, except when they don't, and instead horribly misprice things.) Caplan points out several common irrationalities of voters that do not cancel out, but rather tend to bias government in particular directions.

Any data or argument supporting the irrationality of voters and suboptimality of democratic outcomes can be applied just as well to agents in markets. (What Menand calls "shortcuts" below others call heuristics or bounded cognition.) The claim that people make better decisions in market situations (e.g., buying a house or a choosing a career) because they are directly affected by the outcome is only marginally convincing to me. Evaluating the optimality of many economic decisions is about as hard as figuring out whether a particular vote or policy decision was optimal. Did your vote for Nader lead to G.W. Bush and the Iraq disaster? Did your votes for Reagan help end the cold war safely and in our favor? Would you have a higher net worth if you had bought a smaller house and invested the rest of your down payment in equities? Would the extra money in the bank compensate you for the reduced living space?

Do typical people sit down and figure these things out? Do they come to correct conclusions, or just fool themselves? I doubt most people could even agree as to Reagan's effect on the cold war, over 20 years ago!

I don't want to sound too negative. Let me clarify, before one of those little bulldozers engages with me :-) I regard markets as I regard democracy: flawed and suboptimal, but the best practical mechanisms we have for economic distribution and governance, respectively. My main dispute is with academics who really believe that woefully limited agents are capable of finding global optima.

The average voter is not held in much esteem by economists and political scientists, and Caplan rehearses some of the reasons for this. The argument of his book, though, is that economists and political scientists have misunderstood the problem. They think that most voters are ignorant about political issues; Caplan thinks that most voters are wrong about the issues, which is a different matter, and that their wrong ideas lead to policies that make society as a whole worse off. We tend to assume that if the government enacts bad policies, it’s because the system isn’t working properly—and it isn’t working properly because voters are poorly informed, or they’re subject to demagoguery, or special interests thwart the public’s interest. Caplan thinks that these conditions are endemic to democracy. They are not distortions of the process; they are what you would expect to find in a system designed to serve the wishes of the people. “Democracy fails,” he says, “because it does what voters want.” It is sometimes said that the best cure for the ills of democracy is more democracy. Caplan thinks that the best cure is less democracy. He doesn’t quite say that the world ought to be run by economists, but he comes pretty close.

The political knowledge of the average voter has been tested repeatedly, and the scores are impressively low. In polls taken since 1945, a majority of Americans have been unable to name a single branch of government, define the terms “liberal” and “conservative,” and explain what the Bill of Rights is. More than two-thirds have reported that they do not know the substance of Roe v. Wade and what the Food and Drug Administration does. Nearly half do not know that states have two senators and three-quarters do not know the length of a Senate term. More than fifty per cent of Americans cannot name their congressman; forty per cent cannot name either of their senators. Voters’ notions of government spending are wildly distorted: the public believes that foreign aid consumes twenty-four per cent of the federal budget, for example, though it actually consumes about one per cent.

Even apart from ignorance of the basic facts, most people simply do not think politically. They cannot see, for example, that the opinion that taxes should be lower is incompatible with the opinion that there should be more government programs. Their grasp of terms such as “affirmative action” and “welfare” is perilously uncertain: if you ask people whether they favor spending more on welfare, most say no; if you ask whether they favor spending more on assistance to the poor, most say yes. And, over time, individuals give different answers to the same questions about their political opinions. People simply do not spend much time learning about political issues or thinking through their own positions. They may have opinions—if asked whether they are in favor of capital punishment or free-trade agreements, most people will give an answer—but the opinions are not based on information or derived from a coherent political philosophy. They are largely attitudinal and ad hoc.

For fifty years, it has been standard to explain voter ignorance in economic terms. Caplan cites Anthony Downs’s “An Economic Theory of Democracy” (1957): “It is irrational to be politically well-informed because the low returns from data simply do not justify their cost in time and other resources.” In other words, it isn’t worth my while to spend time and energy acquiring information about candidates and issues, because my vote can’t change the outcome. I would not buy a car or a house without doing due diligence, because I pay a price if I make the wrong choice. But if I had voted for the candidate I did not prefer in every Presidential election since I began voting, it would have made no difference to me (or to anyone else). It would have made no difference if I had not voted at all. This doesn’t mean that I won’t vote, or that, when I do vote, I won’t care about the outcome. It only means that I have no incentive to learn more about the candidates or the issues, because the price of my ignorance is essentially zero. According to this economic model, people aren’t ignorant about politics because they’re stupid; they’re ignorant because they’re rational. If everyone doesn’t vote, then the system doesn’t work. But if I don’t vote, the system works just fine. So I find more productive ways to spend my time.

Political scientists have proposed various theories aimed at salvaging some dignity for the democratic process. One is that elections are decided by the ten per cent or so of the electorate who are informed and have coherent political views. In this theory, the votes of the uninformed cancel each other out, since their choices are effectively random: they are flipping a coin. So candidates pitch their appeals to the informed voters, who decide on the merits, and this makes the outcome of an election politically meaningful. Another argument is that the average voter uses “shortcuts” to reach a decision about which candidate to vote for. The political party is an obvious shortcut: if you have decided that you prefer Democrats, you don’t really need more information to cast your ballot. Shortcuts can take other forms as well: the comments of a co-worker or a relative with a reputation for political wisdom, or a news item or photograph (John Kerry windsurfing) that can be used to make a quick-and-dirty calculation about whether the candidate is someone you should support. (People argue about how valid these shortcuts are as substitutes for fuller information, of course.)

There is also the theory of what Caplan calls the Miracle of Aggregation. As James Surowiecki illustrates in “The Wisdom of Crowds” (2004), a large number of people with partial information and varying degrees of intelligence and expertise will collectively reach better or more accurate results than will a small number of like-minded, highly intelligent experts. Stock prices work this way, but so can many other things, such as determining the odds in sports gambling, guessing the number of jelly beans in a jar, and analyzing intelligence. An individual voter has limited amounts of information and political sense, but a hundred million voters, each with a different amount of information and political sense, will produce the “right” result. Then, there is the theory that people vote the same way that they act in the marketplace: they pursue their self-interest. In the market, selfish behavior conduces to the general good, and the same should be true for elections.

Caplan thinks that democracy as it is now practiced cannot be salvaged, and his position is based on a simple observation: “Democracy is a commons, not a market.” A commons is an unregulated public resource—in the classic example, in Garrett Hardin’s essay “The Tragedy of the Commons” (1968), it is literally a commons, a public pasture on which anyone may graze his cattle. It is in the interest of each herdsman to graze as many of his own cattle as he can, since the resource is free, but too many cattle will result in overgrazing and the destruction of the pasture. So the pursuit of individual self-interest leads to a loss for everyone. (The subject Hardin was addressing was population growth: someone may be concerned about overpopulation but still decide to have another child, since the cost to the individual of adding one more person to the planet is much less than the benefit of having the child.)

Caplan rejects the assumption that voters pay no attention to politics and have no real views. He thinks that voters do have views, and that they are, basically, prejudices. He calls these views “irrational,” because, once they are translated into policy, they make everyone worse off. People not only hold irrational views, he thinks; they like their irrational views. In the language of economics, they have “demand for irrationality” curves: they will give up y amount of wealth in order to consume x amount of irrationality. Since voting carries no cost, people are free to be as irrational as they like. They can ignore the consequences, just as the herdsman can ignore the consequences of putting one more cow on the public pasture. “Voting is not a slight variation on shopping,” as Caplan puts it. “Shoppers have incentives to be rational. Voters do not.”

...But, as Caplan certainly knows, though he does not give sufficient weight to it, the problem, if it is a problem, is more deeply rooted. It’s not a matter of information, or the lack of it; it’s a matter of psychology. Most people do not think politically, and they do not think like economists, either. People exaggerate the risk of loss; they like the status quo and tend to regard it as a norm; they overreact to sensational but unrepresentative information (the shark-attack phenomenon); they will pay extravagantly to punish cheaters, even when there is no benefit to themselves; and they often rank fairness and reciprocity ahead of self-interest. Most people, even if you explained to them what the economically rational choice was, would be reluctant to make it, because they value other things—in particular, they want to protect themselves from the downside of change. They would rather feel good about themselves than maximize (even legitimately) their profit, and they would rather not have more of something than run the risk, even if the risk is small by actuarial standards, of having significantly less.

People are less modern than the times in which they live, in other words, and the failure to comprehend this is what can make economists seem like happy bulldozers. ...

10 comments:

Martin_B said...

My first visit to your blog. Interesting take on voters.

A couple of extra points:

Based on my own brief foray into politics some years ago (not in the USA), democracy only works because 95% of people are publicly passive about it. They might argue politics around the dinner table, but they don't question and agitate in public, which would clog the whole process. It's like the law -- it only works because everyone obeys it, not because there's a policeman walking behind everyone.

Further, people believe that the system will deliver more or less what they want, so there's no need to agonize over their political choices. Do you question every new washing powder that industry brings out? No. You assume the system makes sure it's effective and safe and environmentally friendly enough for you to use without much worry or guilt.

Finally, politics is about the future, and nobody knows what's going to happen, not even Nobel-winning economists who run hedge funds. For instance, until 9/11 Bush was regarded as an amiable duffer who spent too much time holidaying down on the farm. On the principle that they govern best who govern least, he was perfect. Alas, times change.

Like with evolution, as long as there's enough variability in the voting population and in the candidates they vote for, the ship of state will steer a zig-zag course in roughly the best direction. The danger comes with a dictatorship, or when a single idea grips a whole population, as happens from time to time.

Martin

Anonymous said...

Bryan Caplan is of course a complete moral lunatic with whom I would not wish to be in the same hotel. Other than that, obviously a wonderful "economist."

A horrid pretend scholar, and worse person; just to be percise. Yuch.

anne

Anonymous said...

"Precise," I suppose is better. Nonetheless what an awful person, and you ought to understand that.

anne

Anonymous said...

Lastly, physicists might learn to respect other than physicists, same for economists, if I catch the absurd quote correctly. Duh.

anne

Anonymous said...

anne-

I recognize your right to make emotional statements devoid of facts. With that said, it would be great to address where Caplan is making his reasoning errors. The beauty of economics is that it rests upon reason, logic and data. I encourage you to apply all three to enlighten us on where Caplan is off course.

For the record, I think that Caplan correctly sees the challenges we humans face in governing ourselves. I think he fails to offer a complete picture because his arguments like those of many economists rest upon a set of assumptions that the world is a closed system. It is not. We do not really know where we are headed. In addition, he like many economists assumes that we can humans have a simple objective function which we tend towards. We do not. Our tastes and preferences change continuously through time.

In summary, Caplan appeals to Behavioral Economics to show biases but does not ask the next question as to why. Further, he would be well advised to recognize that "optimality" in nature only requires that the outcome be better than the next alternative (as suggested by the blog poster).

Anonymous said...

Not that I care a fig for the inane pretentious comment, becuase I do not, but Bryan Caplan as any brief reading of his work will show in altogether anti-democratic showing the moral sense of a snail. I have made such a comment openly before and will gladly again.

I am in no mood to smile at creeps these days; the creeps are too much in political control.

Poor emotional baby "me." Try intimidation on someone else. I am way past that possibility. Duh.

anne

Anonymous said...

"I recognize your right to make emotional statements devoid of facts."

Fool. Emotional enough, but factual as well. I do not like like would-be intimidation, which is what conservatives have made a speciality and Bryan Caplan is a master of crazy conservative intimidation.

I am not even interested in being clever, now.

anne

Seth said...

Caplan is hardly the first to observe that "the mob" is not fit to rule.

It is appropriate that the "Federalist" Society -- the legal association which has been populating the bench during "Republican" administrations of late -- chose the name of the abortive party of John Adams. The political trouble with the original Federalists was that the public could never shake the feeling that they were really Monarchists.

The "Unitary Executive" theory is just monarchism by another name, of course. The "unitary" part refers to the one branch of government and the one party meant to rule through it. The only thing missing from the formal reasoning as yet is the principle of inheritance. Both the old Federalists and the new are understandably coy about bringing that idea into the open.

Maybe we need a "Trinitary" party to reassert the old-fashioned idea of a three-branch government.

Anonymous said...

Bryan Caplan spoke about his book on BBC radio's Thinking Allowed a couple of months back.
The most recent program features P. J. O'Rourke talking about Adam Smith.

Anonymous said...

Interesting discussion... I posted a long take on Caplan's book a while back (www.literalmayhem.com).

I think you've got it about right with the behavioral economists. They think that humans have a finite optimality function, and that it can be definitively identified.

In reality, the "optimality function" for human beings is so wildly erratic (in each of us) and so incredibly variable (among all of us) that squeezing it into a set of equations is like trying to put toothpaste back into the tube.

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