Irrational as they may be: bosses, spouses and voters are always right
…voters systematically favour irrational policies. In a democracy, rational politicians give them what they (irrationally) want.
Many political scientists think this does not matter because of a phenomenon called the â€œmiracle of aggregationâ€ or, more poetically, the â€œwisdom of crowdsâ€. If ignorant voters vote randomly, the candidate who wins a majority of well-informed voters will win. The principle yields good results in other fields. On â€œWho Wants to Be a Millionaire?â€, another quiz show, the answer most popular with the studio audience is correct 91% of the time. Financial markets, too, show how a huge number of guesses, aggregated, can value a stock or bond more accurately than any individual expert could. But Mr Caplan says that politics is different because ignorant voters do not vote randomly.
Instead, he identifies four biases that prompt voters systematically to demand policies that make them worse off. First, people do not understand how the pursuit of private profits often yields public benefits: they have an anti-market bias. Second, they underestimate the benefits of interactions with foreigners: they have an anti-foreign bias. Third, they equate prosperity with employment rather than production: Mr Caplan calls this the â€œmake-work biasâ€. Finally, they tend to think economic conditions are worse than they are, a bias towards pessimism. [The Economist]
So how do we get out of the tricky situation?
To curb the majority’s tendency to impose its economic ignorance on everyone else, he suggests we rely less on government and more on private choice. Industries do better when deregulated. Religions thrive when disestablished. Market failures should be tackled, of course, but always with an eye for the unintended consequences of regulation. [The Economist]
(For those who tuned in late, Caplan and his GMU colleague Arnold Kling have an excellent blog. For those inclined to get into the deep end, here’s his paper on systematically biased beliefs about economics)