By Arnold Kling
At Mahalanobis, Eric G. Falkenstein writes,
I argue in Why Risk is Not Related to Return that a relative status utility function can explain the failure of the risk-return empirical relationship. Perhaps it can explain persistent irrationality on policy matters?
Read the whole thing. As I understand it, he wants to suggest that voters who favor bad economic policies are not being irrational. Instead, voters’ preferences for policies are based on how they affect relative status, not absolute economic well-being. If my concern is for relative status within my local group, then as long as an economic policy does not give a neighbor an advantage over me, I can be happy with it.
But if relative status is what people care about, then I am not sure how any economic policy gets favored. That is because relative status is such a zero-sum game. If steel workers want a tariff because it raises their status relative to their neighbors, then their neighbors should oppose a tariff for the same reason.
The mystery is why the steel worker’s neighbors go along with the tariff. I think it’s pretty hard to get that out of a model of rational voters.