Whenever some of us claim that voters are irrational, we’re met with the accusation that we’re elitists who haven’t come to terms with the possibility that crowds are wiser than we are. In this context, therefore, I welcome some new research by Erik Eyster and Ernesto and Pedro Dal Bo who provide experimental evidence (pdf) that voters are irrational.
They got subjects to play a prisoners’ dilemma game in which there were big pay-offs to defecting with the result that subjects did not cooperate even though the aggregate rewards to doing so were high. After a few rounds of that game, subjects were offered a vote on a tax which would have disincentivized defection and so encouraged cooperation and the achievement of those higher rewards. However, the majority of subjects voted against the proposal even though it was in their interests.
This suggests that people look too much at the obvious cost of a policy and under-estimate the extent to which it can have the benefits of changing behaviour. The authors say:
Voters will tend to focus on the direct eﬀects of the policy change and underappreciate the indirect eﬀects. As a result, voters will favor reforms with positive direct eﬀects, even when undone by negative indirect eﬀects, and reject reforms with negative direct eﬀects, even when more than compensated by positive indirect eﬀects.
Does this have real-world relevance? What sort of policies fit this sort of pattern?
The authors give the example of pollution taxes: maybe voters overweight their direct cost and underweight their indirect effect in curbing pollution. They also suggest that price or rent controls fit this pattern. Voters see their direct benefit, but under-rate their adverse impact upon supply.
Some of you might add minimum wage laws to this category: voters might overweight their direct benefit of raising wages but underweight the indirect effect of curbing labour demand.
We might add that policies that disincentivize arms races also fall into this category. This might explain hostility to Robert Frank’s call for a progressive consumption tax to deter the excessive spending that results from expenditure cascades.
Perhaps immigration controls fit the pattern too. Voters see the direct benefit: fewer immigrants mean less competition for jobs and hence higher wages. But they don’t see that if their wages rise without any increase in productivity then inflation and interest rates will rise, which means that people will lose their jobs because of weaker demand.
The Brexit vote might also conform to this. Maybe voters over-rated the direct benefit of Brexit (“we’ll save £350m a week”) and under-rated the indirect cost, that Brexit would weaken the economy and hence the public finances.
Franklin Roosevelt once said that “democracy cannot succeed unless those who express their choice are prepared to choose wisely.” And it seems voters don’t choose wisely.
It would, however, be wrong to blame voters alone here. They aren’t expert economists, any more than I’m an expert plumber or electrician.
The fault also lies with politicians – with the “elite” if you like. They don’t seem to care much about the quality of voters’ decision-making, as they as they support the right side. And the media are also at fault, in taking little effort to improve voters’ wisdom. If Roosevelt was right, such carelessness is positively dangerous.
Another thing: we must distinguish between being right and being rational. It's possible that Brexit or high minimum wages are the right policies even if voters choose them for irrational reasons. I find it hard to believe, however, that irrational voters will always or even often choose the right policies for the wrong reasons.