Self-Correction in Markets and Politics
We can’t stop our minds from jumping to conclusions. If we smell smoke, we jump to the conclusion, “Fire.” If metal glitters, we jump to the conclusion, “Gold.” If a person smiles at us, we jump to the conclusion, “Friend.”
The main way humans attain accuracy isn’t by changing our impulsive cognitive natures, but by practicing self-correction. Even though we intellectually leap before we look, we can still train ourselves to look after we leap, then leap backwards if appropriate. Perhaps we see smoke because a fire was recently extinguished. Perhaps the glittering metal is stainless steel. Perhaps the smiling person just wants to borrow some money.
You might think that self-correction primarily belongs to the cognitive elite. But it doesn’t. Eavesdrop at a grocery store, or strike up a conversation with a random person about his cell phone plan. You’ll witness a barrage of self-correction. Like:
“This store seems to charge more for milk, but if you bring your bonus card, it’s actually cheaper.”
“These cookies seem like a better deal, but the box is actually a little smaller, so you don’t really save any money.”
“You save a bundle at CostCo, unless you’re buying perishables and have a small family.”
“That cell phone network has better reception around campus, but terrible customer service.”
Even sentences like: “The BMW is a great car, but it’s insanely expensive” exhibit self-correction. The fine German engineering makes people drool, but they still hasten to admit that fine German engineering doesn’t come cheap.
What prompts even unsophisticated consumers to practice self-correction? The reason is pretty obvious: In markets, self-correction saves the self-corrector money, quality, time, and/or convenience. If you don’t self-correct, you get burned. Badly. And often.
The opposite holds in politics. Few voters exhibit even rudimentary self-correction. Voters rarely say things like:
“The minimum wage hurts low-skilled employment, but the disemployment effect is small relative to the wage gain.”
“Tariffs are a very inefficient form of social insurance, but at least they’re politically feasible.”
“Immigration restrictions are awful for absolutely poor people in the Third World, but I don’t care about them.”
“Giving everyone the ‘best health care in the world’ sounds inspiring, but it would be insanely expensive.”
“Means-tested Social Security and Medicare may be a little unfair, but we’d save a lot of money without noticeably increasing senior poverty.”
“Getting tough on Iran could easily end in disaster, but it’s worth the risk.”
Instead, the typical voter just repeats insipid slogans, bereft of trade-offs, downsides, or reservations.
The reason, again, is pretty obvious: In politics, self-correction doesn’t save the self-corrector a dime. Voters who self-correct live under the exactly same policies as voters who don’t self-correct. The result is a dire shortage of self-correction – and reliably ridiculous policies no matter who wins.
Nov 6 2012 at 12:28am
Great post. But I wonder to what extent you’re conflating self correction with awareness of opportunity costs (in which case I think the same basic analysis holds).
Nov 6 2012 at 12:33am
More and more examples of people responding to incentives. There’s incentive to self-correct in markets, and no incentive to self-correct in politics.
But perhaps we could go a step further. Let’s assume that people will get what the median voter wants in democracy. Then, this lack of self-correction becomes a sort of “democracy failure.” The results are predictable: proposals like giving everyone “the best care in the world” will be overproduced in democracy.
But is it only the libertarian ideas that will be underproduced? Are there other examples?
Nov 6 2012 at 1:10am
Maybe your political culture de-emphasizes trade-offs, but this is hardly universal. Votez l’escroc, pas le facho.
Nov 6 2012 at 2:39am
I have to agree with David (at least his English), though I suspect this willingness to accept trade-offs in politics is more common among the (highly-educated) people I know than the marginal voter.
To me, your first statement seems pretty plausible, though I agree that your second doesn’t. I don’t think “I don’t care about the Third World” flies, but “open immigration would have negative effects on our culture” or “immigrants would eventually be citizens and voters, so we need to screen them before they vote” introduce trade-offs that you actually ignore. Four and five sound like you’ve been reading my diary, except that I don’t keep a diary, and I suspect there are somewhat normal people who agree with me, though I’m not sure how I could know for sure. Finally, I could easily see someone saying getting tough with Iran increases risk but also expected value. Actually, a normal person wouldn’t phrase it that way, but someone almost normal could express a similar sentiment.
A little bit off-topic, but certainly related, I have noticed that the only negative ads that I’ve seen this cycle that haven’t made me hate the creator more than the target have been by the presidential campaigns (which we don’t get a lot of in Western New York). In particular, owning an interest in a firm that produces jobs in China doesn’t hurt your standing with me. This may get to Caplan’s third political statement – I can actually understand an instinctive (irrational) preference for one’s own countrymen over foreigners, so I can understand why jobs here are supposed to be better than jobs in China (I hope you’ll let me skip the series of steps that imply that jobs in China directly replace jobs in western New York, which is intuitively appealing but not air-tight). But it seems that people with, I’m sure, more finely tuned political instincts than I have think employing jobs in China is a vote-loser.
Nov 6 2012 at 5:38am
What a world that would be, where people spoke as you describe, Bryan. There would be a heck of a lot less frustration and anger among the voting populace.
Nov 6 2012 at 7:26am
@Adam Martin: ditto your comment.
But there’s more to the psychological chemistry here than simply a lack of incentive to correct or calculate opportunity costs. There’s a psychological need to discover simple, actionable cause-and-effect relationships where there really are none. René Girard argues in his work on the Scapegoat Principle that the frenetic search for causes was the primary cultural impediment to the rise of science. You really have to view politics as a religion to understand its dynamics.
Nov 6 2012 at 7:36am
Maybe your political culture de-emphasizes trade-offs, but this is hardly universal.
I suspect that’s just because the Americans are once again lead innovation into how to get elected. Once you *know* that the most effective way to get elected is to massively attack the trade-offs your opponent is willing to admit while pretending to be making none yourself, I suspect that the political culture will change world-wide.
It’ll be like watching the rest of the world gradually adopt American innovation in food tastiness and marketing and finally join America in its problems with obesity.
Nov 6 2012 at 11:54am
A habit of self-correction sounds like a much more feasible answer than “we need an informed electorate!”. Voters don’t need to know everything, they just need to reflect on what the actual outcome was.
Of course, this would occur in a fantasy world where there were no benefits to sticking with mistaken beliefs. If you keep insisting that BMWs are cheap, either your assertions will be subject to verification, or people will just write you off as a BMW marketing shill. The reason you can still get away with saying that Obama believes in peace or that Reagan was a libertarian, is that lots of people will support your error, for tribal reasons. In a market there is no punishment for asserting bald facts. You can even live in a bubble and still make decisions based on truth.
Nov 6 2012 at 9:57pm
This is coming from a man who is proud of living in his bubble! How many of these ‘grocery store conversations’ have you ACTUALLY overheard, or are you just formulating examples to fit your preconceived story (which is a standard libertarian trope)?
In my bubble, I don’t hear either type of self-correction much.
Nov 8 2012 at 1:30pm
I recall taking a friend to Times Square in the bad old days. We were walking across the street to enter a restaurant. When I got inside I looked and my friend was gone. Moments later he came in and said he had been propositioned by a lady of the evening. He said, “I should have known she was a hooker because she was the only person who smiled at me.”
It is much easier to sell candy than to sell cough medicine. Once your teeth are rotten and you are obese it is easier to sell you medical care than it is to have you change your habits.
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