My economist friend Bryan Caplan has an interesting essay, “Special-Interest Secret,” in today’s Wall Street Journal. He faults majority ignorance at least as much as minority greed (and the difference in transaction costs between large and small groups) for the persistence of bad policies:
In a monarchy, no one likes to blame the king for bad decisions. So instead of blaming the king himself, critics point their fingers at his wicked, incompetent and corrupt advisers. While this is a good way to keep your head, it is hard to take seriously. Kings often make bad decisions; and in any case, if his advisers are hurting the country, isn’t it the king’s fault for listening to them?
In a democracy, similarly, no one likes to blame the majority for bad decisions. So instead of blaming the majority, critics point their fingers at special interests. But this too is hard to take seriously. The majority often makes bad decisions; and in any case, if special interests are hurting the country, isn’t it the majority’s fault for listening to them?
I have started his book The Myth of the Rational Voter: Why Democracies Choose Bad Policies, but have not finished it. It’s quite good and it raises lots of problems for traditional political science, including public choice economics. Although I haven’t yet finished it, I have read enough that I can in good conscience recommend it.
I have yet to read this book. But, after reading Tom’s expose’, if Bryan Caplan is suggesting that the average American voter is not well informed about the economic consequences of making a not so good vote, I agree.
I am a blue collar factory worker, that is interested in and do a lot or some reading in Austrian Economics, Classical Liberalism, Libertarian Philosophy, Political Economy, and other liberty related subjects. I truly support and believe that free-market economics does a better job in producing a more humane economy. I am very skeptical of Government and it’s promises.
Sadly, most of my co-workers do not see it he same way. Whenever I am having small talk about the economy with my fellow workers, they are in the opinion that government makes the world go round and round.
They always complain about high taxes and at the same time are loyal in their support of big government pro-tax candidates.
They complain about blue collar jobs moving to less taxing overseas countries and don’t see the heavy handedness of the US government regulation that cause some businesses to do so.
They complain about the high cost of living and don’t realize that it is misguided government monetary and regulation policy that drives up prices.
I could go on and on. My point is, in my conversations with my 500 or so co-workers, most of them, not all, are not very well informed about how a free-market economy works. They don’t understand that government intervention, expansion, over taxation, over regulation are many of the reasons why they see the big difference between their gross and net pay. And, they don’t understand that their vote for a big government candidate contributes to this big difference.
Caplan’s complaint is not that voters are ignorant. According to him, “rational ignorance” fails to explain why democracies choose bad policies. The basic problem, Caplan says, is that voters are irrational–biased against the truth.
This claim will come as a shock to his fellow economists; according to the prevailing ethic in economics, if you invoke irrationality as an explanation for people’s behavior, you’re just being lazy.
But Caplan does a good job of defending his claim empirically, and he also offers a way to integrate irrationality with conventional economic theory: his concept of “rational irrationality.”
The gist of it is this: when people select their beliefs, they care about whether a belief is true, but they also care about whether it feels good. When the price of being wrong is high, they tend to be rational. When the price of being wrong is low, they tend to indulge their craving for feel-good belief–i.e., they are irrational.
For each individual voter, the expected price of being wrong is low, because his or her vote is extremely unlikely to effect the outcome of an election. So they tend to believe what feels good to them. Unfortunately (perhaps because of social environment in which people evolved?) there is a human tendency to distrust the market, distrust foreigners, underestimate the benefits of conserving labor, and be pessimistic about the future. So policies based on feel-good beliefs tend to be socially harmful, even though it doesn’t cost the individual voter much to indulge himself.
People who criticize democracy because of “rational ignorance” believe the problem with democracy is that it allows politicians to get away with policies the majority of voters don’t want. Caplan’s position, in contrast, is that the problem with democracy is that it gives the majority of voters what they want. The main solution, in Caplan’s view, is to allow more decisions to be made in the market, instead of the voting booth.
Very well put, Russell. Thank you!
Russell,
Thanks for the insight.
“voters are irrational–biased against the truth.”
This is so very true.
“….when people select their beliefs, they care about whether a belief is true, but they also care about whether it feels good.”
As adults, I would think voters will be able to discern and separate what is truth and what makes them feel good. However, in my experiences, I’ve learned that some people do make decisions based on how they feel with a willful disregard of the truth.
“People who criticize democracy because of “rational ignorance” believe the problem with democracy is that it allows politicians to get away with policies the majority of voters don’t want.”
Who are or who would you say are these people? In my opinion, progressives and neoconservatives are
openly critical of or simply dismiss the liberal democratic process.
I recently came across two Mencken quotes on democracy, both of which appealed to me:
“Giving every man a vote has no more made men wise and free than Christianity has made them good.”
“Democracy is the art and science of running the circus from the monkey cage.”
I’d see if my local library system has Caplan’s book, but I imagine it would only depress me, and plus I’m up to my neck in pleasure reading… “Conversations on Consciousness” ; “The Scientist As Rebel” ; Chestov ; Swedenborg “Heaven & Hell” ; and Tibor Machan “Ayn Rand” (I had never heard of Machan but Manny Klausner recommended him.. on the same night he shared with me that von Mises had, on a New York subway, admitted that he thought there should be government support to the opera!)
qj, public choice economists have said that democracy fails because of “rational ignorance.” The argument is that because the individual voter has little chance of affecting the outcome of an election, he has little incentive to become informed about the people or issues he’s voting on. This is supposed to be a problem because it allows politicians to act against the interest of voters without fear of repercussion.
Caplan doesn’t deny the existence of rational ignorance, but he (along with other economists) thinks it’s been oversold as a critique of democracy.
One would expect ignorant voters to make random mistakes. If this is so, then the errors some ignorant voters make in one direction would cancel out the errors made by other ignorant voters in the other direction, leaving relatively well-informed voters in a position of influence.
If the argument is that ignorant voters are susceptible to politicians’ propaganda, the response is that this confuses ignorance with gullibility. In the market, consumers have strategies for dealing with asymmetrical information, and there’s no reason to expect those strategies aren’t available to voters. For details, see chapter 4 of Caplan’s book.
Some economists have concluded that democracies must work okay, despite the complaints people have about them. But Caplan argues, as noted in my last comment, that voters aren’t merely ignorant–they’re “irrational,” meaning systematically biased. They tend to make the same kind of errors, so their mistakes don’t cancel each other out.
Ryan, I’ve heard other people say Mises advocated government subsidies for opera, but I also seem to recall reading that it’s only an urban legend. Can anyone cite a source either way?
Thanks Russell, for the very clear explanations. In my haste I used a term I should not have used — “ignorance,” which could denote rational ignorance (when the cost of aquiring the information is greater than the benefits of being informed, one will be rationally ignorant), when what I meant was old-fashioned dumb-ass-doesn’t-know-what-he’s-talking-about ignorance.
Many years ago (well, I think it was 1977), I read H. L. Mencken’s quite memorable “Notes on Democracy,” a rather good book in which he stated,
“Democracy is the theory that the common people know what they want and deserve to get it good and hard.”
The book is worth a read:
http://www.amazon.com/Notes-democracy-H-L-Mencken/dp/B000852YIS/ref=sr_1_1/002-1147610-7443235?ie=UTF8&s=books&qid=1179033942&sr=8-1
“I believe your memory is playing tricks on you. It was Ludwig von Mises who was notorious for supporting state opera.” – Milton Friedman
[I found it at http://state-of-flux.blogspot.com/2005/10/friedman-hayek-buckley-and-vienna.html%5D
And Manny Klausner claims to have heard it from Mises himself.
Dr. Palmer, thanks for the book tip. I searched the library database here in the San Joaquin Valley but it’s not there (there are 51 Mencken titles, including many listings for “The American Language”). But I’ll add it to my amazon list to remind myself in the future…
I haven’t read the book, but I’ve read some of Caplan’s academic writing on behavioral economics, and I’m suspicious of his claims. Unless he has developed a better definition of “irrationality” than I’ve seen elsewhere, he really is just talking about neoclassical rational ignorance…and maybe saying he disagrees with peoples’ subjectives preferences.
There’s no reason to think rationally ignorant voters would make random mistakes and cancel each other out. Rationally ignorant is not the same as uninformed, and there are all sorts of forces that operate to shape peoples’ information sets (e.g. campaign finances).
Charles, Caplan adopts the “rational expectations” model of rationality, which he says “essentially equates rationality with the absence of systematic error” (98). So by this definition, rational people who are merely ignorant would tend to cancel each other’s errors out.
Caplan puts the difference between “rational ignorance” and “rational irrationality” this way: “Both treat cognitive inadequacy as a choice, responsive to incentives. The difference is that rational ignorance assumes that people tire of the search for truth, while rational irrationality says that people actively avoid the truth” (123).
It does seem to me that there is a distinction to be drawn between the two ideas. As Caplan says:
“Why are economists so hostile towards theories rooted in ‘stupidity’ or ‘irrationality,’ and so friendly towards the extreme ‘ignorance only’ take on human error? One defense is tautologous: equating all error with ‘ignorance,’ then equivocating between the standard and catchall definitions. Yet whatever words you prefer, two distinct causes of error remain: Either you lack sufficient data, or you fail to take full advantage of the data you have” (98).
Elsewhere in the book Caplan writes:
“Many escape my conclusion by redefining the word _rational_. If silly beliefs make you feel better, maybe the stickler for objectivity is the real fool. But this is why the term _rational irrationality_ is apt: Beliefs that are irrational from the standpoint of truth-seeking are rational from the standpoint of individual utility maximization. More importantly–whatever _words_ you prefer–a world where voters are happily foolish is unlike one where they are calmly logical” (141).
It is true, as you say, that “there are all sorts of forces that operate to shape peoples’ information sets.” But as I suggested in my last post, Caplan argues against the idea that voters are all babes in the woods who naively accept whatever interested parties tell them. You wouldn’t accept the claim that consumers are all that naive–why do you think voters are? Caplan quotes Donald Wittman: “I have never met anyone who believes that the defense department does not exaggerate the need for defense procurement. But if everyone knows the defense department will exaggerate the importance of its contribution to human welfare, then, on average, voters will sufficiently discount defense department claims” (103).
I’m afraid you really do need to say voters are biased against the truth in favor of beliefs they tend to like, in order to explain the bad policy choices democracies make. Fortunately this idea comports well with common sense and introspection, and can be integrated fairly easily with conventional economics (see my first comment).
Thanks for the helpful explanation, Russell.
There’s a problem in equating “rational” with “rational expectations;” it ought not be done. I think it is fair to say that rational expectations (RE) really is neither a hypothesis nor an axiom about individual behavior; it is an assumption that *on average* agent beliefs will reflect the best current understanding of the way the world works; i.e. the modeller must assume that the representative agent understands the model the modeller is proposing. (That’s awkward, I know, but RE is really a mathematical assumption.)
Hence RE is something quite different from rationality.
I don’t believe Caplan really understands rational ignorance in the first place; I’ve read his exchange with Block & Hulsmann over Austrian economics, and while he gets the better of them on most issues, his refutation of “sheer ignorance” reveals he doesn’t understand the “neoclassical” mainstream view of uncertainty. I think this all this leads him astray, and he begins finding “obvious” irrationality where it really doesn’t exist.
But… I haven’t read his book, and confess I am wrestling with what I am guessing he says, rather than what he’s said… a crazy thing to do on my part (perhaps confirming the existence of Caplanian irrationality?)