Cognitive Biases, Ideology & Control

Yesterday, I spoke at a symposium in honour of Andrew Glyn. This is the gist of what I said.

We economists – especially those of us who are on the left – have got a problem: voters don’t agree with us.

Events a few days ago demonstrated this. But it is in fact a longstanding issue. For years, and around the world, voters have had attitudes opposed to ours. They have been more hostile to immigrants and benefit claimants and more supportive of austerity and inequality than we would like. (This isn’t just an issue for the left: voters also have anti-free market attitudes.)

Why is this? I want to suggest that it is because Marxists were right all along. It’s because capitalism generates an ideology which opposes sensible radical reform. The idea of false consciousness should be taken a lot more seriously.

I came to this view via an apparently circuitous route. In my brief and ignominious career in finance, I learned about behavioural finance. This field, inspire by Daniel Kahneman’s work on cognitive biases, is the idea that people make small but systematic errors of judgment when managing their money.

But this raises a question. If people are subject to cognitive biases when they have big incentives to be right – when they are investing their own money – mightn’t the same be true in politics, where their incentives are less sharp?

Some experimental research suggests the answer is: yes.

Some of these experiments have been done by Kris-Stella Trump at Harvard. She split money between subjects in different ways and then asked them what they thought would have been a fair division. She found that those who got a very unequal split thought that the fair division should also have been unequal. Those who got a more equal division said that a fair division would have been equal.

This suggests that as inequality increases, our perception of what’s fair becomes more unequal. That causes people to accept inequality. This is an example of a wider cognitive bias – the anchoring effect.

We’ve seen this in the real world. Back in 1995, there were protests against the “fat cat” salary received by Cedric Brown at British Gas. By today’s standards, that salary was very low – just over £2m, compared to an average FTSE 100 CEO pay of almost £5m. And yet protests against high pay are no greater now than then. We’ve come to accept greater inequality, just as Dr Trump’s work implies.

I’ll give you some more experiments. These were done (pdf) by Phillip Grossman and Mana Komai at Monash University. They generated increasing inequality between laboratory subjects and then gave people the option of paying to destroy some others’ wealth. They found that many took up the offer. But it wasn’t only the wealth of the rich they destroyed. Almost as often, the poor attacked the poor.

What’s going on here is a concern for relative status. People try to preserve their self-image by holding others down. This is entirely consistent with attacks upon immigrants and benefit claimants.

Here’s another example: wishful thinking, or the optimism bias. John Steinbeck once said that there’s no socialism in the US because the poor think of themselves as temporarily embarrassed millionaires.

A similar thing happened here in the 2015 election. The Tories said they’d cut welfare benefits. What voters heard was benefit cuts for other people.

Again, we’ve got laboratory evidence for this bias. Experiments by Guy Mayraz have shown that it’s incredibly easy to induce wishful thinking in people.

I could go on. There’s the just world illusion, status quo bias and adaptive preferences. Put all these together and you have what John Jost calls system justification theory (pdf) – a set of ideas that sustains inequality and injustice.

All of this helps explain why there isn’t more hostility to inequality. But it doesn’t explain why anger at elites was channelled towards voting for Brexit rather than into more economically sensible directions.

I suspect three mechanisms helped here. One was wishful thinking.

Another is prospect theory. This tells us that people who feel they’ve lost want to gamble to break even. This is why they back longshots on the last race of the day or why they hold onto badly performing stocks. The thing motivated many Leavers. People who had lost out from globalization, or felt discomfited by immigration, voted Leave because they felt they had little to lose from doing so.

The third mechanism has been discovered recently by David Leiser and Zeev Kril. They show that laypeople’s thinking about economics is dominated by what they call the “good begets good” heuristic. People believe that good things have good effects.

This, I suspect, explains a lot. People think controlling the public finances, or controlling immigration, are good things, so they must have good effects. I shouldn’t need to tell you that it ain’t so. In this context, the slogan “Vote Leave, Take Control” was an act of genius. It appealed to the “good begets good heuristic as well as to the fact that people facing uncertainty and feeling distrustful of elites want more control for themselves. (Perhaps this is fuelled by yet another cognitive bias – overconfidence about the benefits of such control)

I contend, therefore, that Marxian theories of ideology are supported by recent research. People aren’t just misinformed about political issues – there’s lots of surveys telling us that. They are irrational too. They have false consciousness.

Now, this goes against mainstream centrist thinking, which seems to have imported into politics a theory of consumer sovereignty just as behavioural economics is undermining that theory. But it is in fact an old idea. We’ve known since the work of Richard Downs in 1955 that people can be rationally ignorant about politics. We also know they can be rationally inattentive. So why can’t they also be rationally irrational in politics?

All this poses the question: what can be done about this? The answer isn’t to dismiss people as stupid. The point about the cognitive biases programme is that it shows that we are all prone to error. In fact, this is true of those of us who are awake to such biases. Once you start looking for such biases, you see them everywhere – and perhaps exaggerate their significance. That’s an example of the confirmation bias.

Instead, we should think about policies that run with the grain of people’s biases and yet are sensible themselves. One clue here lies in that word “control”. What we saw during the EU referendum is that people want control. We should therefore offer voters just this. And meaningful control, not just immigration controls.

I’ll leave others to think about what such a platform might be: for me, it includes a citizens income and worker democracy among other things. The point, though, is that whilst we hear much about inequalities of income, the left must also think about reducing inequalities of power.

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