Customer Reviews

The Myth of the Rational Voter: Why Democracies Choose Bad Policies (New Edition)

5 star:		(22)
4 star:		(12)
3 star:		(10)
2 star:		(4)
1 star:		(8)

 

 

Many people have noted that democracy seems not to work - policies are implemented that often are not in the best interest of voters, and when voters are surveyed they routinely lack even the most basic civic knowledge. The way people have typically answered this problem is to say that voters are uninformed, and that if they simply had more access to good information, they would use that information to make better choices. But even so, the tiny informed minority will sway elections because the uninformed majority will vote at random.
Here, Caplan directly challenges that view by asserting that voters are not simply ignorant but irrational, and that this is in fact predicted by economic theory. Voting is not like shopping - it is more like making use of a commons, because the costs of a "bad" vote are borne by the public at large, and the chance of an individual casting the deciding vote is tiny. Therefore, people will vote for what makes them feel good without bothering to find out whether it really is good - it simply doesn't matter. Caplan explores four systematic biases voters hold against good economic policy - antimarket bias, antiforeign bias, make-work bias, and pessimistic bias. The fact that systematic bias exists means that the irrational majority does not in fact vote at random, so it's the irrational voters deciding who wins elections rather than the small, informed, rational minority. Voters get what they want, it's just that what they want is actually bad for them - and they don't care!
Caplan makes a persuasive case for viewing the average voter as irrational rather than simply ignorant, though admittedly I am sympathetic to this idea to begin with. I wish he had been able to include more recommendations in his conclusion, but this should be a promising area for further research.

This book is a very interesting read, describing a utility-based model of why voters vote as they do. The author proposes that voters are naturally biased against their own interests. The concept is that the probability of any one voter changing the result of a vote is vanishingly small, and therefore each voter votes for what makes them feel better about themselves, even if the policies go against their own interest and the interests of the economy. For example, voters vote for higher taxes, large inefficient government programs, and protectionist policies.

For example, a voter might vote for a politician who promises to raise the voter's taxes and give their money to the poor. The voter figures that the chances that their individual vote would make the difference between the candidate winning or losing is extremely small; making the cost of the vote effectively zero. However, the psychic benefit of the vote is positive.

Where the author fails is in the chapter where he measures the policy leanings of an artificial "enlightened voter". How he defines an "enlightened voter" is an average voter with the statistical characteristics of one having a graduate degree in Economics. Based on a sophisticated multivariate-regression-based analysis, the author determines that an "enlightened voter" would be predicted to view potential policies more like... an economist! What a surprise!

Caplan asserts that the voting public would support more reasonable policies if they all had graduate degrees in economics. However, there are plenty of Econ PhD's who put too much faith in government policies solving apparent market failures.

The book is well worth reading, and makes many good points regarding the reasons why voters vote for policies that go against their own best interests, and in aggregate against the health of the overall economy. However, it does not make a convincing case that economists should be running the show.

Caplan's take on democracy can by summarized as follows: first, he accepts two arguments FOR democracy by democratic enthusiasts, 1. voters are largely unselfish; 2. politicians usually comply with public opinion. He then adds his point: 3. voters are irrational (they have "systematically biased beliefs", or in layman's terms, they have false beliefs). Caplan develops a theoretical framework to prove that it is in fact rational for voters to be irrational because the "price" of their irrationality is low in politics.

The book mainly consists of the following themes: 1. the history of people's economic misconceptions; 2. empirical evidence of systematically biased beliefs; 3. the "rational irrationality" framework and why systematically biased beliefs lead to democratic failure; 4. prescription for overcoming democracy's weakness.

I think Caplan succeeds pretty admirably in 1, 2 and 3, but he is relatively terse at 4. But this is understandable: if you take his arguments seriously, then unless every voter (or at least the "median voter") has a Ph.D. in economics (in fact, she needs to be a libertarian economist!), the outcome of democracy will not be efficient. Increasing the electorate's education, etc. level will somewhat mitigate the situation, but as Caplan himself proves, this is hardly enough (education is not sufficient to eradicate all systematically biased beliefs).

As to the book itself, it is quite readable. I knew about his work before reading the book, what surprised me was how he mixed it with the history of economics with his own research, with quotes and all.

It's also interesting to note that (at least according to my observations) mainstream public choice (the economic approach of studying politics) economists tend to downplay Caplan's work, maybe it is because Caplan's work cuts to the core of public choice (the "rational choice" approach)? Or maybe they really think his work is not much different than rational ignorance? Now that his book seems to have gathered a lot of publicity, maybe others will take a second look.

The only weakness of the book is the part that he repudiates the accusation that economists have "market fundamentalism". His point is basically 1. markets, when free of failures, will lead to efficient outcome (first, "positive", premise); 2. Caplan does not say this, but in most economists' thinking, there is also an implicit second, or "normative" premise, which is that efficient outcome is desirable. In fact, most economists tend to shy away from this conclusion and maintain that they only specialize in cost/benefit analysis and do not make such judgment, but from their passionate, enthusiastic and sometimes vehement arguments for free market, it is not too difficult to detect such deep-rooted belief -- that "free market is good". 3. economists do not always assume there are no market failures, therefore they are not "market fundamentalists". But this is typical economists' thinking: in order to argue with them, you must accept their first premise first, and implicitly also accept the second premise, then the debate about "market fundamentalism" naturally reduces to argument about whether there are market failures. But, they are people who do not accept even the first premise, and there are more -- on moral grounds, etc. -- having difficulty accepting the second. I am not saying I agree with these people (but I have not been blinded by the ivory tower yet, so at least I know the existence of such people and such views). It is very typical of economists to not even acknowledge such views, or pretend they do not exist. It is not an easy task to face these people face-to-face, listen to their arguments, then come up with your own arguments to correct their "biased beliefs", but a good economist should not be daunted. However, this is not a big blemish in an otherwise well researched and well written book, so I am still giving it 5 stars.

Libertarians, in theory, believe in the maximum amount of freedom for individuals as long as that freedom does not interfere with the freedom of others. (See Brian Doherty's Radicals for Capitalism: A Freewheeling History of the Modern American Libertarian Movement.) Bryan Caplan, a libertarian economist at George Washington University, believes that this is true in the realm of economics. In the realm of politics - especially voting - he does not think highly of the choices of free people. He argues that voters are not only ignorant, but irrational. Caplan in fact thinks that low voter turnout is good since those who are voting are usually better informed than those that abstain. Worse yet, he does not fear that politicians will not carry out the will of the people, he fears that they will.

This runs counter to the theory favored by most economists and political scientists known as "the miracle of aggregation." The theory, explained in James Surowiecki's The Wisdom of Crowds, argues that the aggragate choices made by ordinary, minimally informed people will be better or more accurate than those made by small groups of experts. This is true, for example, when people are estimating the number of jelly beans in a jar or the weight of a cow. The guesses are unbiased. In the political and economic realm, biases play a large part in people's choices.

Caplan identifies four economic biases that lead to bad policies:

1)People do not fully appreciate that private profits benefit the general public. When asked about rising prices people usually blame the greed of large corporations, when prices fall they seem to remember the laws of supply and demand. Problems arise when voters start demanding of the government to freeze or to guarantee a certain price, this leads to bad policy decisions.

2)People are generally wary of free trade, for they believe foreign countries are taking their jobs. Caplan, like most economists since Ricardo, believe in free trade. In theory, free trade would be optimal. But when one country is practising free trade with countries that pursue mercantilist policies, then free trade can be detrimental. Here's a case where the public is more rational than the libertarian economist.

3)People think employement is better than productivity. The creative destruction of capitalism is fine from the panoptic view of the economist, but for the ordinary person losing his or her job it looks less beneficial.

4)The general public has a bias towards pessimism. There is a general feeling amoung the public that they are less well off than the previous generation. ("the disappearing middle class" and so forth) But again, when one takes a longer view - or an economist's view - there is more evidence for optimism.

What rational choice theory boils down to is psychology. People can have all the information in the world, but they still go with what they feel more secure with, namely the status quo. They uncertainty and displacement of free trade will not be something they choose. True, voters make irrational choices, but democracy is still the best system. Democracy offers stablity and durability. It can withstand the bad policies, and take corrective measures. Democracy was never about being the most productive or efficient form of government.

Economists on the right and the left agree on a surprisingly large number of policy issues. They believe free trade is good, the U.S. budget deficit is not a problem and most human beings are better off now than in the past. Yet the democratic public doesn't agree. It fears trade and foreigners, thinks the budget deficit is a big problem and is pessimistic about the economy even during periods of record economic growth. But the worst part, says economics professor Bryan Caplan, is that the public votes. Drawing on empirical research about voter attitudes, Caplan describes how voters are mistaken about many policy issues and - more importantly - why they are wrong. His account is frighteningly plausible, but so is his solution: more economic education. We recommend this pithy volume to anyone concerned about voters' ostensibly self-defeating behavior. Democracy may be better than the alternatives, but no one said it was easy.

Bryan Caplan does a great job of dispelling a number of myths in The Myth of a Rational Voter. One is the Self-Interested Voter Hypothesis (SIVH), a belief that I had until reading this book. People vote for the common good (as they perceive it), not for their narrow self-interest. Caplan also does a great job of defending the economics profession from unfair charges of being right-wing, free-market fundamentalists who are in love with the rich and powerful. This is an enjoyable, educational book.

Overall a good book and worth reading though would recommend borrowing from a library over buying as it's not really a keeper. I think Mr. Caplan intentionally over-reads some of his data but I think the overall premise is correct and he makes a good argument on why this is so.

Mr Caplan's book is very interesting in the beginning as he takes us through research that illustrates how the average American holds biased views which influence how we perceive (and choose to solve) issues we face as a society. While I enjoyed the book for the factual insight to our belief system, I'm not sure Mr Caplan proves his thesis as stated in the subtitle - "Why Democracies choose bad policies."

For all intents and purposes, the topic is presented in three parts: 1) demonstrating that voters are irrational, that is, we don't make choices that are in our best interest, 2) case studies of irrational behavior in a democracy, and the potential impacts, 3) anecdotal sermonizing. It's the 2nd part that presents the problem.

Myth of the Rational Voter plays by the numbers in the 1st part. Taken at face value, it's a factual walk through our beliefs and biases as captured by a scientific survey. In the 2nd part, Mr Caplan shows how these biases influence our decision making. He also shows how a Democracy (really a Republic; representative Democracy) has some give in the system, allowing better informed representatives to do what's right rather than necessarily what the voters say they want. The only conclusion I was able to draw from the case studies is that "Democracy" works better than it should - that is, better than "true" Democracy would if decisions were made directly by the voting public. If better informed representatives save us from ourselves, why does Democracy result in bad policies?

In the 3rd part, Mr Caplan rails against the misinformed, and the policies that arise from their voting behavior in a rambling monologue. I don't necessarily disagree; however, he hasn't sufficiently drawn the connection given his arguments in the case studies, so his exposition doesn't flow. This segment is disjointed from previous conclusions.

I enjoyed the first two parts, but tired of the waxing philosophic in the third segment. Here, Mr Caplan wanders from his derived conclusions, preferring, instead, to argue his own biases.

Bryan Caplan has written a very interesting book. The conceptual idea is great. He believes, and argues with strength, that people are voting according to what makes them feel good. Neither their own selfish interests, nor indisputable facts about which economic policy measures really make people better off, count.

And what make people feel good? Most people (i.e. non-economists) are clearly anti-market, anti-foreign, generally pessimistic and has a make-work-bias. These theses are very well documented. These beliefs make people likely to vote pro-duties to protect US business and jobs, even tough most economists agree that this is normally a very bad idea.

People voting for what they think is good, can also help explain why most nations combat the climate problem in a very expensive and inefficient way. Subsidies for solar and wind power, trains and buses, are widespread, but a very costly path to reduce carbon emissions. Saving the rain forests is very cheap, but very few spend money on it.

The politics of most democracies clearly have flaws. However, Caplan is far to harsh on democracy. In many (most) areas, policies are reasonable and sound. There are duties on many products, but most products are now duty-free. All developed nations have elements of a welfare-state. But democratic governments all over the world deals fairly good in balancing the interests between moral hazard and social insurance.

I do agree on one of his main measures to make voters more rational and less ignorant: increase economic training at school. By and large, I would encourage you to read the book, or essay. It is thougt-provoking.

Economists have spent a lot of time discussing market failures. The implicit assumption is that we should get the government involved to fix the problem. Free markets got their revenge with classical public choice theory. It applies an economic analysis to the government and finds that "government failure" is widespread. Don't assume that governments will do a better job - it may do a much worse job. Compare the incentives of consumers to that of voters. Consumers who do their homework can usually get a better quality product at a lower price. By contrast, voters do not have an incentive to do their homework because their one vote is unlikely to change the election. They will get the same government regardless of whether or not they do their homework. Thus voters suffer from "rational ignorance." The outcome is bad government.

The scoreboard so far: liberals 0, libertarians 1.

Clearly the stakes of public choice theory are very high. Enter Donald Wittman who launched a powerful challenge that turned the tables. Do you remember The Wisdom of Crowds? (If not then buy it now. Do not pass go, do not collect $200). He opens with the story of a contest at a county fair. The goal is to guess the weight of an ox after it had been slaughtered and dressed. The crowd all entered their guesses. After the contest was over the statistician Francis Galton took the entries and calculated the average guess. Galton was a eugenicist who expected that the average guess would be very poor. After all, you couldn't expect a bunch of commoners to do as well as learned, educated men. But it turned out that the average guess of the crowd was 1723 and the weight of the ox was 1722. The collective wisdom of the crowd was only off by one pound! The reason is simple: as long as errors are random then they will generally cancel out. As you get more and more people in the crowd the average guess will get closer and closer to the real value.

Wittman uses the wisdom of crowds effect to defend democracy. Suppose A and B are running for a political office and A is the better candidate. If voters are fully informed then A would get 100% of the vote. If voters have are completely ignorant - if they have no information at all - then they will be forced to pick at random. They would pick the winning candidate 50% of the time, as often as flipping a coin. Now, we know that voters are ignorant but they do have some information. Voters aren't 100% ignorant. Suppose they only have a small amount of information which lets them pick the superior candidate 51% of time. Then A will win the election with 51% of the vote. The wisdom of crowds refutes classical public choice theory.

The scoreboard at this point: liberals 2, libertarians 1.

That is where Bryan Caplan enters the picture. He picks up Wittman's guantlet. As Surowiecki points out, the wisdom of crowds effect only works if the errors are random - if people are just as likely to guess a weight that is too high as too low. It does not work if voters make systematic errors. E.g. suppose that a highly respected cattleman were to loudly claim that he believed that the weight was about 2000 pounds. This would cause the crowd to systematically err to the high side. Caplan musters empirical evidence to show that voters are systematically irrational. He identifies four main areas: (1) voters do not appreciate the vital role of profits and prices, particularly when they are high, (2) voters do not appreciate the benefits of free trade, (3) voters incorrectly put jobs ahead of productivity, and (4) voters are overly pessimistic.

With the empirical data settled Caplan's task is to explain why voters make systematic mistakes. His explanation of "rational irrationality" basically draws from Sick Societies: Challenging the Myth of Primitive Harmony by Robert Edgerton. Edgerton is an anthropologist who is critical of the myth the noble savage - that primitive societies are happy and harmonious. He conclusively shows that they are quite often ugly, violent, and irrational (actually Lawrence Keely was the first to take down the myth of the noble savage). But there is a crucial point. Very few primitive societies have irrational beliefs about how to hunt. But they do often have irrational beliefs about the weather, magic, and medicine. The lesson could be put this way: the needs of day-to-day survival are harsh. Irrational beliefs are punished swiftly and harshly. An irrational belief about hunting will lead to an empty belly and that will provide a powerful reason to change it. Thus people will not harbor irrational beliefs when there is immediate feedback. But what about irrational beliefs that do not provide immediate feedback? Those are beliefs that people can hang onto.

That takes us in the same direction as rational ignorance: democracies do not punish irrational beliefs because one vote is unlikely to change the election. A consumer with an irrational belief is punished by buying an inferior product. That gives him an incentive to get change his belief. Voters are never punished for having irrational beliefs. If you are a liberal you can blame the problems in society on corporate greed. If you are a libertarian you can blame the problems in society on big government. One of those beliefs is wrong and one is right, but you will never be punished for having the wrong belief because your vote will not change society. Thus voters are systematically irrational and bad government is the outcome.

Final scoreboard: liberals 2, libertarians 3