How behavioral economics explains voting for Brexit..

Chris Dillow, uses ideas from behavioral economics to explain why people voted for Brexit despite it harming their economic opportunities.

This Brexit vote is actually nothing new. People have voted in the past which doesn’t explain

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 – might the same be true in politics, where their incentives are less sharp?

Some experimental research suggests the answer is: yes.

So what explains?

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)

It is interesting how prospect theory helps us understand so many things around the world. Its usage is limited but is catching up…

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