People aren’t as daft as some behavioural economists would have us believe. This is the message of a new paper by Olivier Bargain and colleagues. They studied the choices of British workers of how long to work, and found that:
People behave on average as if they were maximizing SWB…A majority of individuals actually make decisions that are in line with the maximization of income-leisure satisfaction.
Of course, there are exceptions to this. But many of these are because people are constrained by labour market institutions and policies: some people work too much because they can’t find decent part-time work, and others too little because they can’t find work at all.
Granted, there’s a caveat here. Perhaps people’s preferences have adapted to their circumstances and prior choices. Nevertheless, this is evidence that people aren’t as stupid as paternalists claim. Perhaps workers are badly off not so much because they make bad choices, but more because they are the victims of inequality and bad policies.
Bargain’s finding is consistent with some other evidence. For example, Marc Fleurbaey and Hannes Schwandt found that only a minority of Americans could think of easy changes to their lives that would increase their subjective well-being – which is what we’d expect if most people were maximizing their well-being. And people’s spending decisions do seem rational and forward-looking on average, in the important sense that ratios of consumer spending to wealth predict subsequent stock market and economic fluctuations.
How can we reconcile all this with the claim that voters are ill-informed and irrational?
Easy.
Our spending and working decisions are made regularly, so we can learn from experience to make better ones. And we have a strong incentive to do so: if we’re wrong we end up poor and unhappy.
In voting, however, neither of these conditions is met. Even general elections are one-off events (let alone referenda) so we don’t get the relevant feedback that would help us make better decisions in future. And we’ve little incentive to do so; if I make a stupid decision in the voting booth, I’ll not suffer.
This brings me a paradox about behavioural economics, at least as it is used in politics. It invites us to distrust people when they should be trusted – when they make regular decisions about their everyday lives. But it trusts people when they should be distrusted – for example by deferring too much to unfiltered and unreflective public opinion*.
Downing Street’s “nudge unit” should have worried less about the irrationalities of consumers, and more about the reckless overconfidence of David Cameron which gave us austerity and Brexit.
* There’s a stronger case for worker democracy than there is for referendums.
Spending and working decisions are largely data driven. Voting is also a lifestyle decision in that most people choose the social group they identify with and then vote for whatever party is they identify with that social group. Generally people who identify with "workers" vote Labour and those who identify "entrepreneurs" vote Tory. No amount of data will change most people's minds on voting. I think only about 10% are floating voters.
To argue that voters are ill-informed and irrational ignores that the voting decision is not based on data for 90% of voters so applying criteria like "informed" or "rational" makes as little sense as comparing apples and oranges.
Posted by: Patrick Kirk | August 15, 2017 at 02:11 PM
«In voting, however, neither of these conditions is met. [ ... ] if I make a stupid decision in the voting booth, I’ll not suffer.»
But democracy does not make the individual voter accountable, but voter *culture*, that of group of voters. If most voters or groups of voters don't develop a culture of taking care about voting, in the long run they get ruined. Selective pressure undoubtedly applies, but to group culture and the long run.
As an example, G Brown noted that when establishing the rule of law the first five centuries are always the hardest.
Within the idea that «if I make a stupid decision in the voting booth, I’ll not suffer» there is a standard assumption that makes most of Economics useless: real people, because of very strong selective pressures, don't maximize purely their own utility, but that of their children and grandchildren too, and in general that of their genetic line, especially but not only women.
In part because traditionally with extended families the welfare of an old adult did rely directly on that of her children and extended family. But in part because people without a genetic (or at least memetic) instinct to care for future generations of their genes tend to become extinct, and the actual economy is made only of people whose ancestors did not become extinct.
As someone said, sterility is hereditary: if your parents did not have children, you won't have them either, and your children won't have any too. :-)
BTW the classic example *and* counterexample, a quote from another blogger listening to a conversation between a young friend and her father:
«Friend: How did you vote then, Dad?
Dad: I voted Out.
Friend: Dad! Why did you do that? The economy will crash! It’ll cause chaos!
Dad: That won’t bother me hen, I’m retired.
Friend: But it’ll affect me! What about me?
Dad: (Long silence).»
Posted by: Blissex | August 15, 2017 at 11:02 PM
«vote for whatever party is they identify with that social group. Generally people who identify with "workers" vote Labour and those who identify "entrepreneurs" vote Tory. No amount of data will change most people's minds on voting.»
But data is not needed to make voters *accountable* and for (collective) selective pressure to apply to voters. Suppose for example that in some countries "workers" no longer identified with the party that actually represents their interests, and voted for a party that screws them. Just because of a mistake in perception. Well then: in the countries where "workers" correctly even if entirely randomly would vote for the party that is on their side they would have a better life than in countries where they would vote for a party not on their side; workers would then tend to move from one country to another.
That “vote for whatever party is they identify with that social group” is usually just a proxy, but it is usually a valid proxy in the long term, collectively.
BTW, the Conservatives are not the party of "entrepreneurs", far from it, they are and always been the party of *incumbents*, even if the main type of incumbency they represent has changed; they have been at different times the party of incumbency in status (nobles), in property (landlords/tories), in business (capitalists/whigs), in managerial control (executives), and now are mainly the party of incumbents in debt leverage (the sell-side of finance mostly, and speculators on margin on assets).
Posted by: Blissex | August 15, 2017 at 11:19 PM
It's very inspiring (and depressing, given the current state) to see the majority maximising their SWB.
I've noticed under the 'My Inspiration' link the website is actually down now.
There most up-to-date web archive cache of the link is https://web.archive.org/web/20160828201319/http://www.darwilliams.net/music/tabs/WDYHITHS.html
Posted by: Connor Carr | August 16, 2017 at 12:13 PM
Blissex - agree with every word you wrote. The mismatch between the party people identify with and the policies of that party is my theory as to why the GOP in USA can get away with screwing its own working class voters.
Posted by: Patrick Kirk | August 16, 2017 at 02:50 PM
And then there is the problem where politicians lie about what they are going to do.
Asymmetric information, indeed.
Posted by: marku52 | August 16, 2017 at 06:42 PM
«The mismatch between the party people identify with and the policies of that party is my theory as to why the GOP in USA can get away with screwing its own working class voters.»
There aren't that many white working class people who vote GOP in the USA *for economic reasons*. If they vote GOP it is for other reasons, and which matter to them more than their own welfare.
I think that G Norquist is both sincere and realistic in describing how this works here:
http://web01.prospect.org/article/world-according-grover
“But on the vote-moving primary issue, everybody's got their foot in the center and they're not in conflict on anything. The guy who wants to spend all day counting his money, the guy who wants to spend all day fondling his weaponry, and the guy who wants to go to church all day may look at each other and say, "That's pretty weird, that's not what I would do with my spare time, but that does not threaten my ability to go to church, have my guns, have my money, have my properties, run by my business, home-school my kids.”
If you have an interest in USA politics as you seem to do please read the whole interview, it is excellent.
Can't resist quoting him from that though on something that he used to be right about:
“Pat Buchanan came into this coalition and said, 'You know what? I have polled everybody in the room and 70 percent think there are too many immigrants; 70 percent are skeptics on free trade with China. I will run for President as a Republican; I will get 70 percent of the vote.'
He didn't ask the second question … do you vote on that subject?”
Posted by: Blissex | August 16, 2017 at 10:08 PM