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Tuesday, November 3, 2015

Every Flaw in Consumers Is Worse in Voters

Markets aren't perfect, but politics is worse

I have been making a mistake for most of my life. See, I’m an economist, and one of the things that attracted me to economics is the notion of the “ideal economy.”

Of course, there are valid objections to the use of markets. There are people who cheat and commit fraud, and there are problems with information and market power and externalities. Sometime consumers make mistakes. 

In fact, some of those mistakes, as my friend and Duke colleague Dan Ariely is fond of telling me, raise questions about the very nature of our “model” of consumption.

In his book Predictably Irrational, Dan makes two main points. First, consumers are not “rational,” at least not in the sense economists assume. Consumers have trouble choosing among several alternatives; new product prices are arbitrary; and people are seduced by “free” stuff.

Second, sellers and marketers know that consumers are predictably irrational, and they take advantage of that weakness by advertising, packaging, and carefully framed comparisons.

So what’s the mistake I’ve been making for most of my life? I’ve been trying to defend the perfection of markets. I’ve been sucked in to the notion that markets are “ideal”: “Markets aren’t so bad!” “Consumers are generally better off!” and so on.

Friends, if you have been defending the perfection of markets you have been played for a sap. Stop it. The simple fact is that people can be hoodwinked. People. Human beings. The results of behavioral economists and psychologists such as Dan Ariely, Richard Thaler, and others are correct, and persuasive.

But when someone uses those results to criticize markets — and stops there — they are not playing fair. Because the criticism of markets always has to be in reference to some other system: markets are bad, compared to what?

So if you are confronted with someone who has been reading behavioral economics, I would recommend that you grant their claims. People are not that great at making decisions. But then challenge your friend with this: Every flaw in consumers is worse in voters.

Think about it. Every flaw that people point out in consumer choice is present, but much worse, in political choice!

Asymmetric information about quality (where producers have more knowledge about the product than consumers)?

Check. Consumers can look at ratings or Consumer Reports to learn about product quality. But it’s very difficult to know when a politician is lying (unless you buy the old line that it’s when her lips are moving).


Check. Yes, the cable company is pretty bad. But the state is the very definition of monopoly. Your only escape is to move… to some other monopoly. There is never competition, and the bureaucrats down at the Department of Motor Vehicles know that. That’s why they treat you so badly.

Seductive and misleading advertising?

Check. Maybe I do buy those new Nike kicks because they promise to make me like Mike, and maybe that Twix bar by the checkout counter is too tempting to resist. But at least I like Twix! Politicians “place” themselves in ads all over the place, like photo bombers from hell, and how often do we really get what we’re promised?

Seduced by free stuff?

Check. Ariely notes, rightly, that people will often (irrationally) choose the free alternative, and will fail to understand the other costs of free stuff, like waiting in line or filling out paperwork. Frankly, that sounds to me like a pretty good description of government programs ranging from our new healthcare system (“It’s all free!”) to recycling programs, which conserve on everything except time, which is the one resource that is truly non-renewable. I’ve seen people waste 10 minutes and 50 cents worth of gas to recycle two plastic soft drink bottles and a cardboard box worth a total of a nickel. But since recycling gives us free resources, it must be worth it!

A number of recent books (Bryan Caplan’s Myth of the Rational Voter, Ilya Somin’s Democracy and Political Ignorance) have made this point, but for some reason advocates for liberty don’t close the circle very well in debates.

Here’s the fact: People do a poor job of acquiring information and using it to make decisions in the way that the rational choice model predicts. Here’s the conclusion: This has implications for the capacity of consumers to benefit from markets, because consumers are people.

But the conclusion also has to be that voters have the same problem, unless you think people are dumb in the supermarket but miraculously smart in the voting booth. It’s the same person.

Why are voters even dumber than consumers? Consider this: A consumer who buys a bad television, or pays too much for a coffee-maker, or gets ripped off on an investment, is stuck with the bad TV, and loses her own money on the coffee-maker or the dumb stock buy. It happens, but you learn from your mistake (this is called “market feedback”) and make a better decision the next time around.

Voters, on the other hand, have even less information, have no way of getting accurate information, and know that their choices won’t determine the outcome anyway. If I spend months learning about the candidates, and then cast my vote for president, it has absolutely zero impact on the outcome. Not small, mind you: zero.

I still vote, of course. I’m a good citizen. But I vote for the candidate who makes me feel good.

As Jason Brennan has pointed out in Ethics of Voting, this breaks the connection between civic commitment (voting) and desirable outcomes (good government). Ignorant, irrational voters don’t just make themselves worse off. They can harm everyone.

People choose badly. But they choose worse as voters than they do as consumers. So unless you believe in suspending democracy, that’s a pretty powerful argument for markets.

This post first appeared at the excellent and exciting new Learn Liberty blog.

  • Michael Munger is the director of the philosophy, politics, and economics program at Duke University. He is a past president of the Public Choice Society.