Pursuit of Truthiness

my gut tells me I know economics

How to Persuade Economists about Irrationality

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Bryan Caplan‘s Myth of the Rational Voter is a good explanation of how politics works, but a truly great example of how to convince people about something they fundamentally disagree with.

Economists usually assume that people act in their rational self-interest. Critics often object that this is unrealistic, but their objections usually fail to make any change in economists’ beliefs or practices. While behavioral economics has grown larger and more respected, it remains a small sub-field.

One reason the critics have failed is that modeling people as rationally self-interested actors is easy and is a genuinely good first approximation most of the time. But another big reason the critics have failed is that they are bad at persuasion. Lets contrast their arguments with Caplan’s:

1) Speak the Language

If you want economists to listen to your critiques, you need to put them in the language of economics. At a minimum, this means using terms correctly, understand what economists mean by “rationality”. Caplan takes this a step further by translating his argument into supply and demand framework, showing that the quantity of irrational beliefs will rise when the “price” of holding them goes down. This is reminiscent of one of the most widely cited behavioral economics papers of all time, where Kahneman expressed inconsistent preferences (irrational) as crossing indifference curves (indifference curves being a standard tool).

2) Make one Paradigm a Special Case of the Other

No one wants to be told they are wrong. Even worse is to be told you were badly, stupidly wrong. It is best to leave your intellectual opponents a line of retreat that allows them to accept you argument gracefully.

The Keynesian revolution was probably the most successful paradigm shift in the history of economics. I think one big reason for Keynes’ success that he left a line of retreat. The reason his magnum opus was called the “General Theory” was because he thought that classical economics was true for the special case of full employment, but needed revision in the more general case of recession-level unemployment. Instead of saying his opponents were stupidly wrong, he making the easier sell that his opponents were correct about a special case.

Caplan uses a similar tactic, but one even more generous to the other side. For Caplan, economists are right about rationality in general, and only wrong in the special case when it is cheap to hold irrational beliefs. In the market settings that most economists study, holding irrational beliefs is expensive.  As Ronald Coase said, the employee of a corporation who buys something for $10 and sells it for $8 is not likely to do so for long. But for voters, holding irrational beliefs is cheap, because voting “incorrectly” has an incredibly small chance of actually affecting the election’s outcome.

3) Status is Everything

The key reason critics of economics fail is that their arguments are perceived as an attack on economists. Sometimes they actually say explicitly that the rationality assumption shows how economists are stupid / autistic / lacking in common sense, so people should lower the status of economists and any policy recommendations they make.

This is about the worst thing you can do if you are actually trying to persuade someone. Bryan Caplan found a way to not only avoid this problem, but to turn it into the finest weapon in his own persuasive arsenal. Myth of the Rational Voter is like economist crack.

The core of Caplan’s empirical argument is based on the Survey of Americans and Economists on the Economy. Caplan goes through the survey in great detail, explaining how normal people have very different beliefs from economists on most politically-relevant economic issues. He carefully explains why the economists are right and everyone else is wrong, which makes the economists feel smart. He also shows how the differing answers for economists are not due to the class or ideological biases of economists: economists disagree almost as much (and in some cases actually disagree more) with people who share their own income level and political ideology.

To disagree with Caplan, an economist has to say their conclusions about economic issues are no more valid than those of average voter. Agreeing with Caplan means getting to say that I as an economist know better than everyone else. You can see why Caplan’s argument persuaded a lot of economists that voters are irrational. Speaking their language, he argued that economists need to add a special exception for politics to their general arguments for rationality, and did so in a way that raised the status of the people he was trying to convince.

PS In case this blog post was unpersuasive because it was perceived as raising Bryan Caplan’s status too much, I can try to take him back down a peg. Caplan thinks that he is pretty nerdy because he is the Dungeon Master of an all-economists D&D game. But that is just not on the same scale of nerdiness as “Fermat’s Last Stand“, a musical adventure of mathematicians and philosophers through a D&D world, featuring boss fights against Rene Descartes and Saul Kripke.

PPS Thanks to the Public Choice Outreach Conference for a free copy of The Myth of the Rational Voter.

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Written by James Bailey

September 4, 2013 at 10:23 am

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