![]() Cover of the first edition | |
Author | Bryan Caplan |
---|---|
Country | United States |
Language | English |
Subject | Democracy |
Publisher | Princeton University Press |
Publication date | 2007 |
Media type | Print (Hardback) |
Pages | 276 (2007 edition) |
ISBN | 978-0-691-12942-6 (2007 edition, hbk) |
OCLC | 71581737 |
320.6 22 | |
LC Class | HD87 .C36 2007 |
The Myth of the Rational Voter: Why Democracies Choose Bad Policies is a 2007 book by the economist Bryan Caplan, in which the author challenges the idea that voters are reasonable people whom society can trust to make laws. Rather, Caplan contends that voters are irrational in the political sphere and have systematically biased ideas concerning economics.
Throughout the book, Caplan focuses on voters' opinion of economics since so many political decisions revolve around economic issues (immigration, trade, welfare, economic growth, and so forth). Using data from the Survey of Americans and Economists on the Economy (SAEE), Caplan categorizes the roots of economic errors into four biases: anti-market, anti-foreign, make-work, and pessimistic.
Caplan refers to the anti-market bias as a "tendency to underestimate the benefits of the market mechanism." [1] : 30 In Caplan's view, people tend to view themselves as victims of the market, rather than participants of it. He also categorises a few major misconceptions associated with this bias: (1) a view that market payments are transfers rather than incentives, (2) a belief in a monopoly theory of price, where firms impose prices on consumers without recourse.
In the first, he describes that "people tend to see profits as a gift to the rich" and that "limiting profits" permits pity to the poor. [1] : 32 However, profits are seen by economists as means to promote trade in those sectors. [1] : 32 Moreover, the historical attacks on usury and windfalls see interest as robbing the borrower. Yet, interest is in fact two things: the creditor delaying his own consumption for compensation (known as liquidity preference) and compensation for the risk of borrower defaults. [1] : 33
The second is where corporations, even small-scale suppliers, are seen as greedy monopolists that prey on the consumer. Caplan argues that all trade is a two-way street and that people like middlemen are not interposers attempting to fleece the people, but rather, making up for transportation, storage, and distribution costs. [1] : 34 At a more broad level, cheating people is bad for business and the existence of multiple firms offering similar products implies competition, not monopoly power, which limits any firm's ability to increase prices. [1] : 35
Caplan refers to the anti-foreign bias as a "tendency to underestimate the economic benefits of interaction with foreigners." [1] : 36 People systematically see their country of origin as in competition with other nations and so oppose free trade with them. Foreigners are seen as the "enemy" even if the two governments are at a lasting peace. The principles of comparative advantage allow two countries to benefit a great deal from trade, even if one is worse than the other in every single way. [1] : 38 The degree of benefit is rarely equalized, but it is always positive for both parties. Caplan also notes how the anti-foreign bias can be rooted in pseudo-racist attitudes. For Americans, trading with Japan and Mexico is more controversial than trading with Canada and England, which are more linguistically and ethnically similar to the United States. [1] : 39
Caplan refers to the make-work bias as a "tendency to underestimate the economic benefits from conserving labor." [1] : 40 Caplan claims that there is a tendency to equate economic growth with job creation. However, that is not necessarily true, since real economic growth is a product of increases in the productivity of labor. Dislocation and unemployment can be caused by productivity gains making certain jobs no longer necessary. All things being equal, economic rationality would require that these people make use of their talents elsewhere. Caplan makes special emphasis of the movement away from farming over the past 200 years, from nearly 95% of Americans as farmers in 1800 to just 3% in 1999, as an illustrative example. [2] As an economy industrialises, increased labor productivity in agriculture means less labor is needed to produce a given quantity of agricultural goods, freeing up labour (a scarce resource) to be employed in the production of manufactured goods and services.
Caplan refers to the pessimistic bias as a "tendency to overestimate the severity of economic problems and underestimate the (recent) past, present, and future performance of the economy." [1] : 44 The public generally perceives economic conditions as declining or about to decline. Caplan alleges that there is often little or no evidence to back up such perceptions of imminent apocalypse. Among challengers Caplan cites is Julian Lincoln Simon and his book, The Ultimate Resource, which argues society continues to progress despite claims of environmental degradation and an increasing use of natural resources.
The author pays special attention to the 1996 Survey of Americans and Economists on the Economy (SAEE), created by the Washington Post , the Kaiser Family Foundation, and Harvard University Survey Project. The SAEE asked 1,510 random members of the American public and 250 people with PhDs in economics the same questions concerning the economy. In addition to its 37 topical questions, the SAEE also inquired about the participant's income, income growth, education, and other demographic information.
The answers to the questions are often different: the public often blames technology, outsourcing, high corporate profits, and downsizing as reasons for why growth is lower than it could be. Economists, on the other hand, barely pay any heed to such arguments. Some 74% of the public blame greedy oil companies for high gas prices, but only 11% of economists do. [1] : 87 The public tends to believe real incomes are decreasing while economists take the opposite stance.
Caplan notes that the chasm between economists and the general public might arguably be due to bias on the expert's part. Self-serving bias (economists are rich and so they believe whatever benefits them) and ideological assumptions (economists are a bunch of right-wing ideologues) are two challenges the author addresses. Caplan writes: "Both the self-serving bias and the ideological bias are, in principle, empirically testable. Economists' views are the product of their affluence? Then rich economists and rich noneconomists should agree. Economists are blinded by conservative ideology? Then conservative economists and conservative noneconomists should agree." [1] : 54 In turn, if self-serving bias is unavoidable, it would likewise skew the perceptions of the non-wealthy, causing them to believe both the "'ought' claim" that government should reduce inequality of wealth and the "'is' claims" that existing inequalities of outcome are severe and are perpetuated by corporate and governmental power structures.
Using data from the SAEE (which includes measures for ideology, income, job security, and other measures), Caplan simulates what people would believe if they had the same circumstances as economists, a technique often used in political science called "enlightened preferences". If the ideological and self-serving biases are true, most of the difference between the "enlightened public" and economists should disappear. If, however, the enlightened public is not much closer to economists, then something else is going on, as those explanations have been neutralized. Caplan believes that that something else is the biases he enumerated earlier. The data tends to support Caplan's argument, with most (but not all) of the enlightened public closer to economists than to the public.
In standard neoclassical economics, people are assumed to be rational; the notion of systematic bias is considered to be a sloppy assumption. In many ways, Caplan agrees: most people are rational when it comes to choosing a job, buying milk, hiring employees, and selecting a business strategy. They can be wrong, of course, but a systematic bias rarely, if ever, occurs.
But the author argues they are rational only because it is costly to be wrong. A racist will still hire a qualified black person because going to the second-best option will be expensive to the company. A protectionist will still outsource because he has to achieve as many advantages over his competitors as he can to stay in business. Someone who thinks a discount store is haunted will seriously question their conclusions when they find their budget to be tight.
Sometimes, however, it is virtually costless for the individual person to hold on to their preconceived beliefs, and people enjoy such beliefs. Rational irrationality simply states that when it is cheap to believe something (even when it is wrong) it is rational to believe it. They refuse to retrace their logic and seriously ask themselves if what they believe is true. For some people, thinking hurts and so they avoid it if they can. This often appears in politics. Caplan argues that, "Since delusional political beliefs are free, the voter consumes until he reaches his 'satiation point,' believing whatever makes him feel best. When a person puts on his voting hat, he does not have to give up practical efficacy in exchange for self-image because he has no practical efficacy to give up in the first place." [1] : 132
The book is notable in use of irrationality, a rare assumption in economics. Yet the work is also a challenge to conventional public choice, where voters are seen as rationally ignorant. Conventional public choice either emphasizes the efficiency of democracy (as in the case of Donald Wittman) or, more commonly, democratic failure because of the interaction between self-interested politicians or bureaucrats, well-organized, rent-seeking special interests and a largely indifferent general public (as in the work of Gordon Tullock, James M. Buchanan, and many others).
Caplan, however, emphasizes that democratic failure exists and places the blame for it squarely on the general public. He makes special emphasis that politicians are often caught between a rock and a hard place: thanks to advisors, they know what policies would be generally beneficial, but they also know that those policies are not what people want. Thus, they are balancing good economic policy, so they do not get voted out of office because of slow growth, and bad economic policy, so they do not get voted out of office because of unpopular policies.[ citation needed ]
The book was reviewed in the popular press, including in The Wall Street Journal , [3] The New York Times , [4] and the New Yorker . [5] It was also briefly mentioned in Time Magazine . [6] Nicholas Kristof wrote in The New York Times that it was the "best political book of this year." [7]
The book received a mixed-to-positive review from Loren Lomasky in Public Choice , co-inventor of the theory of "expressive voting" that was a close competitor to Caplan's theory of rational irrationality. [8] Stuart Farrand wrote a critique of Caplan's book for Libertarian Papers. [9] Gene Callahan reviewed the book for The Independent Review . [10] Prema Popat of NorthEastern University and Benjamin Powell of Suffolk University jointly wrote a review of the book for New Perspectives on Political Economy. [11]
Prior to publication of the book, Caplan had put forward the main thesis of the book as the lead essay in the November 2006 issue of Cato Unbound . [12] Other participants in the debate, who critiqued various aspects of Caplan's thesis, included David Estlund, Loren Lomasky, and Jeffrey Friedman. [13]
The book received a mixed review from the libertarian Austrian economist Walter Block in the Journal of Libertarian Studies . [14] Block was highly critical of Caplan's attempts to paint Austrian economics as a form of irrational free-market extremism. He also criticized Caplan for not referencing Hans-Hermann Hoppe's book Democracy: The God That Failed that had a similar theme. Block's review was also published in LewRockwell.com and Psychology Today . [15] [16]
The economic calculation problem is a criticism of using economic planning as a substitute for market-based allocation of the factors of production. It was first proposed by Ludwig von Mises in his 1920 article "Economic Calculation in the Socialist Commonwealth" and later expanded upon by Friedrich Hayek.
Rational choice theory refers to a set of guidelines that help understand economic and social behaviour. The theory postulates that an individual will perform a cost-benefit analysis to determine whether an option is right for them. It also suggests that an individual's self-driven rational actions will help better the overall economy. Rational choice theory looks at three concepts: rational actors, self interest and the invisible hand.
Public choice, or public choice theory, is "the use of economic tools to deal with traditional problems of political science". Its content includes the study of political behavior. In political science, it is the subset of positive political theory that studies self-interested agents and their interactions, which can be represented in a number of ways – using standard constrained utility maximization, game theory, or decision theory. It is the origin and intellectual foundation of contemporary work in political economy.
James McGill Buchanan Jr. was an American economist known for his work on public choice theory, for which he received the Nobel Memorial Prize in Economic Sciences in 1986. Buchanan's work initiated research on how politicians' and bureaucrats' self-interest, utility maximization, and other non-wealth-maximizing considerations affect their decision-making. He was a member of the Board of Advisors of The Independent Institute as well as of the Institute of Economic Affairs, a member of the Mont Pelerin Society, a Distinguished Senior Fellow of the Cato Institute, and professor at George Mason University.
Behavioral economics studies the effects of psychological, cognitive, emotional, cultural and social factors on the decisions of individuals and institutions and how those decisions vary from those implied by classical economic theory.
Bryan Douglas Caplan is an American economist and author. Caplan is a professor of economics at George Mason University, research fellow at the Mercatus Center, adjunct scholar at the Cato Institute, and former contributor to the Freakonomics blog; he also publishes his own blog, EconLog. He is a self-described "economic libertarian". The bulk of Caplan's academic work is in behavioral economics and public economics, especially public choice theory.
Hans-Hermann Hoppe is an American paleolibertarian and anarcho-capitalist political theorist. He is Professor Emeritus of Economics at the University of Nevada, Las Vegas (UNLV), Senior Fellow of the Ludwig von Mises Institute, and the founder and president of the Property and Freedom Society.
Anthony Downs was an American economist specializing in public policy and public administration. His research focuses included political choice theory, rent control, affordable housing, and transportation economics. He wrote a number of books including An Economic Theory of Democracy (1957) and Inside Bureaucracy (1967), which have been major influences on the public choice school of political economy.
Loren E. Lomasky is an American philosopher, currently the Cory Professor of Political Philosophy, Policy and Law at the University of Virginia.
Noocracy, or "aristocracy of the wise", as originally defined by Plato, is a system of governance where decision making is in the hands of philosophers, similar to his idea of philosopher kings. The idea was further expanded upon by geologist Vladimir Vernadsky, and philosophers Pierre Teilhard de Chardin and Édouard Le Roy, and their concept of the noosphere.
Geoffrey Brennan is an Australian philosopher. He is a professor of philosophy at the University of North Carolina at Chapel Hill and a professor of political science at Duke University. When not teaching in the US Brennan is a faculty member in the Research School of Social Sciences (RSSS) at the Australian National University.
Libertarian paternalism is the idea that it is both possible and legitimate for private and public institutions to affect behavior while also respecting freedom of choice, as well as the implementation of that idea. The term was coined by behavioral economist Richard Thaler and legal scholar Cass Sunstein in a 2003 article in the American Economic Review. The authors further elaborated upon their ideas in a more in-depth article published in the University of Chicago Law Review that same year. They propose that libertarian paternalism is paternalism in the sense that "it tries to influence choices in a way that will make choosers better off, as judged by themselves" ; note and consider, the concept paternalism specifically requires a restriction of choice. It is libertarian in the sense that it aims to ensure that "people should be free to opt out of specified arrangements if they choose to do so". The possibility to opt out is said to "preserve freedom of choice". Thaler and Sunstein published Nudge, a book-length defense of this political doctrine, in 2008.
Ha-Joon Chang is a South Korean institutional economist, specialising in development economics. Currently he is a reader in the Political Economy of Development at the University of Cambridge. Chang is the author of several widely discussed policy books, most notably Kicking Away the Ladder: Development Strategy in Historical Perspective (2002). In 2013, Prospect magazine ranked Chang as one of the top 20 World Thinkers.
The paradox of voting, also called Downs' paradox, is that for a rational, self-interested voter, the costs of voting will normally exceed the expected benefits. Because the chance of exercising the pivotal vote is minuscule compared to any realistic estimate of the private individual benefits of the different possible outcomes, the expected benefits of voting are less than the costs.
Criticism of democracy has been a key part of democracy and its functions.
The concept known as rational irrationality was popularized by economist Bryan Caplan in 2001 to reconcile the widespread existence of irrational behavior with the assumption of rationality made by mainstream economics and game theory. The theory, along with its implications for democracy, was expanded upon by Caplan in his book The Myth of the Rational Voter.
The altruism theory of voting is a model of voter behavior which states that if citizens in a democracy have "social" preferences for the welfare of others, the extremely low probability of a single vote determining an election will be outweighed by the large cumulative benefits society will receive from the voter’s preferred policy being enacted, such that it is rational for an “altruistic” citizen, who receives utility from helping others, to vote. Altruistic voting has been compared to purchasing a lottery ticket, in which the probability of winning is extremely low but the payoff is large enough that the expected benefit outweighs the cost.
Ilya Somin is a law professor at George Mason University, an adjunct scholar at the Cato Institute, a blogger for the Volokh Conspiracy, and a former co-editor of the Supreme Court Economic Review (2006–2013). His research focuses on constitutional law, property law, migration rights, and the study of popular political participation and its implications for constitutional democracy.
Democracy and Political Ignorance: Why Smaller Government Is Smarter is a 2013 book from Stanford University Press by George Mason University law professor Ilya Somin. Somin argues that people are ignorant and irrational about politics and that this creates problems for democracy. He further claims that this consideration argues in favor of smaller and more decentralized government.
Stephanie A Kelton is an American economist and academic, and a leading proponent of Modern Monetary Theory. She is a professor at Stony Brook University and a Senior Fellow at the Schwartz Center for Economic Policy Analysis at the New School for Social Research. She was formerly a professor at the University of Missouri–Kansas City. She also served as an advisor to Bernie Sanders's 2016 presidential campaign.