Prospect theory & populism

Does prospect theory help explain support for Brexit in the UK and for Donald Trump in the US?

The bit of the theory I have in mind is the prediction that people are risk-seeking when they are losing, because they gamble to get even. This explains several phenomena: why the favourite-longshot bias is stronger (pdf) in the last race of the day*; why (pdf) stock-pickers hold onto losing shares; why losing sports teams abandon their tactics in favour of risky all-out attack and “Hail Mary” passes; and why we sometimes get rogue traders – men who try to recoup losses by making riskier trades and so lose even more.

The same thing might explain support for Brexit and Trump. It’s generally agreed that both causes draw support from workers and the unemployed who feel that they’ve lost out under the existing order. As Jonathan Freedland says, “the voters rallying to populist insurgents are those who feel failed by conventional politics, left behind either economically or culturally.”

Of course, voting for Brexit, Trump or other populists is risky. But prospect theory tells us that those who feel they’ve lost might want to take risks. This might be because they feel they’ve nothing to lose: the threat of higher unemployment isn’t so scary if you’re already unemployed or if you think there’s a high chance of losing your job anyway. And/or it might be because they think that change carries upside risk.

This mechanism is amplified by another – distrust. The elite’s warnings that Brexit and Trump are risky are true. But many poorer workers and unemployed don’t trust elites – a fact which Brexiteers are cynically exploiting.

My point here is the opposite of Janan Ganesh’s. He writes that Brexiteers are rich enough to be able to ignore the economics of Brexit. Whilst this is true of Boris Johnson and Nigella’s dad, it cannot explain Brexit's support among over 40% of voters.

You might object there that, in theory, there is another mechanism tying impoverishment to political attitudes – resignation. Often, the poor can be apathetic about politics. I’m not sure there’s a contradiction here. The poor can be both apathetic in the sense of not actively seeking positive political solutions to their plight, but also willing to take a risky option should it present itself.

I’m making two points here.

First, we don’t need to invoke xenophobia, small-mindedness or racism to explain the popularity of Brexit or Trump. Such support can also arise from decent people acting as behavioural economics predicts.

Secondly, what we’re seeing here is a cost of inequality. Unemployment, insecurity and low pay has generated constituencies willing to back risky options. And, as Eric Uslaner and Henrik Jordahl has shown, inequality breeds distrust so that even on those (rare?) occasions when elites are correct, many voters don’t believe them. Perhaps, therefore, support for Trump and Brexit are not so much diseases as symptoms of a wider malady.

* Some researchers, however, find (pdf) this isn’t statistically significant, at least in the US.

Comments

[Gary Othic]

Interesting view - hadn't thought of it this way before. Certainly seems to explain some things better than other views I've seen.

[Ralph Musgrave]

Another explanation is the undemocratic, i.e. fascist nature of the EU elite. One example is their policy of "we'll let you vote, but if you vote the wrong way, we'll make you vote again till you see things our way".

The latest example of that "you're not allowed to vote the wrong way” is here:

http://www.breitbart.com/london/2016/05/24/eu-vows-use-new-powers-block-elected-far-right-populists-power/

No doubt Britain’s pompous, pseudo intellectual, slimy liberal elite is happy with that undemocratic or fascist attitude. I’d guess a significant proportion of the unwashed plebs are not too happy. I’m with the unwashed plebs.

[SeanV]

How is Brexit the same thing as Trump? How is Brexit risky? Wasn't joining risky? Isn't leaving prison and three meals a day and a roof over your head risky? I mean wasn't your blog just yesterday all about being open to some new ideas?
You quote Freedland: “the voters rallying to populist insurgents are those who feel failed by conventional politics, left behind either economically or culturally.”
and: "But many poorer workers and unemployed don’t trust elites"
Um, am I missing something or is that not what the Stumbling and Mumbling blog is essentially all about?
Anyway, excuse the rant - but 38% of EU spending is agricultural subsidies. Dress it up all you want but that's basically what the EU does. And that's a transfer from the poor to the rich - precisely the sort of thing that this blog should be vigorously opposed to.

[Dave Timoney]

Is there any evidence that supporters of Brexit, or Trump, see their preference as risky? (This isn't rhetorical - I genuinely don't know).

In other words, are they consciously willing to gamble on the possibility of a large downside because they envisage significant upsides?

My unrepresentative anecdata suggests many leavers are determinedly uncalculating. They see this as a free hit rather than a throw of the dice.

[Boursin]

"Isn't leaving prison and three meals a day and a roof over your head risky?"

Perhaps the single most curious metaphor used in the Brexit debate, as leaving the "prison" would mean that the area of land you'd be free to move around, live and work in would shrink by approximately 95%. Since when did entering a prison amount to leaving it?

[2slugbaits]

I don't know about the Brexit debate, but with respect to the Trump phenomenon I'm not convinced by the "prospect theory" argument. The problem is that most polls show Trump supporters are comfortable middle class types...typically white males with a steady job and income sufficient for a comfortable if not lavish lifestyle. You can say something similar about Sanders supporters. Both groups are comfortable enough that they can indulge their preferences without having to really face the consequences. OTOH, Clinton's support largely comes from a coalition of minorities who have a lot to lose if Trump is elected. Political outcomes are deadly serious for those folks. As I understand it prospect theory would predict that it would minorities with weak economic power who should be most inclined to gamble with a Sanders because he promises the biggest expansion of the social safety net. But that's not what the polls and exit interview data show. Clinton's support comes from minorities. Sanders' support comes from upscale, educated whites. Trump's support comes from mid-scale white males.

[rogerh]

I rather think there is no good prospect either way. In or Out, Trump or Hilary the prospect for ordinary people is pretty poor, more of the same, a slow road downhill. After June 23 and after November 8 the 'winners' will take a look at the books, suck air through their teeth and declare all promises off, the last lot were lying and things are much worse. Plus ca change.

[Ralph Musgrave]

Boursin above trotts out the old argument that Brexit would mean Brits would not be able to “move around” freely in Europe. I travelled around Europe before the EU existed. Passport checks at national frontiers took about half a minute.

[TonyD]

@Ralph This may be true if you're going on holiday but what about working in another country.

[TonyD]

Prospect Theory may explain certain segments of UK society's attitudes, but my experience is that of (mostly) male British professional mid to senior management working in Europe. Bizarrely many of them are pro-Brexit, which confuses me. When I point out to them that they may be either voting themselves out of a job or at least adding an administrative cost to their firm to arrange for their future work visas, they just waive it off and don't seem to care.

[Miguel Madeira]

"Sanders' support comes from upscale, educated whites."

For what I have read, the exit polls show that the support of Sanders is a mix of low-income withes and college students (perhaps you are confusing "college students" with "upscale, educated"? They will be that in the next years, but not yet)

[Con Keating]

There is no need to invoke prospect theory to explain the preference for risk taking - moving from positive expected outcomes to negative is a rigid rotation not a translation on the real line. This reverses the sense of the distribution - and things we might dislike now become desirable.

[Dave Timoney]

Re the US, the key demographic bias in the support of Sanders is towards the young. Clinton's support among minorities is skewed to older cohorts - i.e. those with something to lose economically as much as in terms of rights. Trump's support (as 2slugbaits notes) is largely mainstream Republicans defending their gains rather than grieving over losses.

It is reasonable to expect the young to have a larger appetite for risk than the old, but what also appears to be at work in the Sanders surge is their self-consciousness as losers not only in the present (because of student debt) but in the future too (because of growing inequality and possible automation of whitecollar jobs).

Re the UK, it is a commonplace that those who resent immigration are typically those who have been impacted by it the least. Nostalgia isn't a satisfactory explanation as many are living in small towns that have little-changed in decades. One way of explaining this paradox is that they anticipate greater future losses precisely because of the growing gap between their immediate environment and that there London.

[theOnlySanePersonOnPlanetEarth]

The underlying view of this article is that the choice is somehow irrational, in this case it is called risky.

But if you are in the position where all hope is lost the irrational and risky thing to do would be to stick with the status quo!

[Bob]

What is amazing is nobody mentions that all the remain arguments apply to the EU more so than they do here.

There are no risks of leaving the EU.

Things will bumble along as they did before and slowly change over time as the freedom to control the borders and make our own laws take shape.

Given how much effort is being made in reinforcing the status quo because of 'risks' why would anybody in the EU take the 'risk' of changing anything they don't have to?

Don't rock the boat. Avoid changing the status quo. The price of things may change and business might get hurt.

And they will still be locked into a deflationary treaty with no capacity to offset those changes. And they are conservative to a fault and lobbied to death by big business.

So no the EU won't rock the boat at all. Because they like change and adjustment even less than the British.

[Daniel]

"First, we don’t need to invoke xenophobia, small-mindedness or racism to explain the popularity of Brexit or Trump. Such support can also arise from decent people acting as behavioural economics predicts."

But we see them consistently, particularly in the case of Trump, and we also see that Trump supporters are not particularly impoverished. You could argue that they are culturally "behind", but that is explicitly tied to race and resentment of a rising nonwhite standard of living.

With Brexit, too, I suspect the prejudice (such as it is) is more detached from the economics. I guess the argument is that poorer people are (as a long shot) betting that xenophobia and racism will improve their lot, and so adopting those traits. But again, does that fit the data? I'd guess that Brexit supporters are largely Tory voters and not at the very bottom of the economic pile.

Perhaps your model more accurately describes UKIP supporters, particularly those whose switch from Labour can seem a bit baffling when you speak to them.

[Antoni Jaume]

Fom what I've seen, that Ralph Musgrave is a full Nazi. Otherwise why would he write:

Another explanation is the undemocratic, i.e. fascist nature of the EU elite. One example is their policy of "we'll let you vote, but if you vote the wrong way, we'll make you vote again till you see things our way".

The latest example of that "you're not allowed to vote the wrong way” is here:

http://www.breitbart.com/london/2016/05/24/eu-vows-use-new-powers-block-elected-far-right-populists-power/

Since when fighting Nazism is fascist?

[B.L. Zebub]

"Unemployment, insecurity and low pay has generated constituencies willing to back risky options."

As you said above, if one feels one has nothing left to lose, risks -- whether real or imagined-- do not seem as salient (to paraphrase one of your recent critics).

What you are leaving aside is that the Sanders' campaign in the US and Corbyn-Labour in the UK are also described by their opponents as risky. Still, they remain quite popular among the rank and file. Are we sure the same thing does not apply to them?

On the other hand, if one feels one has plenty to lose, even the prospect of a limited, mild change -- a la Sanders/Corbyn --may seem like an unacceptable threat. Again, are we sure the Brexit option is not one such grossly over estimated risk?

More broadly, one of my concerns with this kind of reasoning where other people's biases and motivations are subjected to scrutiny is that one often forgets to subject one's own biases and motivations to scrutiny.

My two cents.

[joe]

I would think that Prospect Theory applies more to the actual Remain voters. The Don't Knows will likely vote 2:1 to Remain and avoid the risk of the unknown, which is why punters are pricing remain as 80% certain. Many of the polled Outers will also vote Remain in the booth once their job and future finances are finally actually on the line.

Brexit supporters have had 40 years of the Daily Mail etc brainwashing them. In USA they have had Fox News telling them that the Washington elite is some Communist plot out to get them all. There is no fear there at all because they truly believe their received point of view to be the safe and true one. They only listen to views, Vote Leave and Trump, which reinforce their prejudices, so evidence and counter argument is a waste of time. Different views after all are "project fear" so can be dismissed.

You have people living in areas without any migration, fearing migrants. You have small businessmen who export zilch "complaining" about EU red tape. You have disenfranchised UK citizens in one party safe seats wisely pronouncing on the EU democratic deficit.
They believe the mythical £350M a week membership fee but not that EU membership attracts £53B a year overseas investment and £170B a year extra trade only because we are in the EU.