• Uncategorized

    Caplan’s Myth of the Rational Voter

    I finally picked up Bryan Caplan’s The Myth of the Rational Voter. Caplan has a crisp writing style, and as I expected, the book was a quick, pleasant read.

    Caplan’s basic thesis is that standard economic assumptions lead to a pessimistic view of democracy. Because elections are rarely determined by a single vote, the cost to a voter of his own “incorrect” opinions approaches nil. Introspection and empirical evidence tells us that people naturally prefer some opinions to others. In other words, people have a natural demand for irrational – as opposed to unbiased – opinions. Voters costlessly cater to their appetite for irrational opinions at the ballot box, but society pays for it in the aggregate.

    Voters are not merely irrational; they are systematically irrational. If the demand for opinions were distributed randomly, then irrationality might cancel out. Then, elections would be decided by residual “rational” voters, the small number of voters who had formed opinions for reasons other than their natural appetite for those opinions.  But Caplan argues that evidence shows voters to be systematically biased. In particular, he argues that voters suffer from anti-market bias, anti-foreign bias, make-work bias, and pessimistic bias.

    The argument that I most wanted Caplan to make, was that society creates incentives for individual voters to adopt specific types of irrational opinions, such as incentives to adopt seemingly altruistic opinions. Caplan touches on this point, but it is mostly beyond the scope of the book.

    Caplan views the market, or individual decision-making, as the natural alternative to democracy, or collective decision-making. He suggests that most people are comfortable with theories of market failure, but that they assume that democracy works well. His libertarian punch-line is that, confronted with his argument that democracy should work poorly, people should be incrementally more likely to prefer decisions made by market processes.

  • Uncategorized

    The Anti Self-Help Book

    If I were forced at gunpoint to write a self-help book, I would probably focus on two points.

    1) Suspect advice from other people.

    People who give you advice have very different incentives than you do. They receive little or no benefits for giving good advice, and they usually don’t pay the costs of bad advice. This ought to affect how they think about giving advice, and here is some evidence that it does.

    The main effect I expect this has is that advice-givers make an effort to give advice that feels good, instead of making an effort to give good advice. What sort of advice feels good to give? Probably, the advice that an altruistic and idealistic person would give. By giving this sort of advice, we affiliate with altruistic and idealistic people and improve our standing in the eyes of the advice-seeker.

    Some people will object that I employ, here as elsewhere, a reductively self-interested view of human nature. Indeed, it’s true that people don’t walk about scheming of ways to eke out an extra increment of utility from every last encounter. But their unconscious motivation to do so is quite enough. It is reasonable to assume that, most of the time, people are naturally inclined, even without a conscious ulterior motive, to present themselves at their most agreeable and attractive.

    This creates a difficult interaction between selfishness and altruism. Advice givers really are trying to be altruistic, but by doing so, they adopt the viewpoint of an altruistic person, and give bad advice. They give the advice that an altruistic, idealistic person would want to follow, rather than advice suited to the advice seeker, who is probably just looking for good, pragmatic advice. Instead of altruistically tarnishing their image by giving hard-nosed, pragmatic advice, they selfishly imitate altruistic people.

    Of course, not all advice is created equal. Your mother really does care about the results of the advice she gives, and she probably is less concerned with how it makes her look. Your university’s career advisor does have some incentives to make sure the students she advises get placed in jobs. Commencement speakers, on the other hand, have no good incentives whatsoever, and they give the worst, most idealistic advice of all.

    Perhaps the fact that this is my main piece of advice should not inspire confidence in my advice.

    2) Trust your instincts.

    Every human being is the product of a billion years or more of natural selection. This means that not just our bodies, but also our minds, have been molded to best serve our interests. Every one of us is born with a package of appetites, instincts, and intuitions that are well-suited to guide us through life.

    Hold on, you might say, evolution serves the interests of our offspring, not our own interests. People have conscious goals besides maximizing their number of offspring. This is true enough. Serendipitously though, most of the things that humans strive for, success, status, wealth, friendship, family, and love, are generally consistent with our “evolutionary” interest in maximizing our offspring, and it’s no accident. Natural selection gave humans these goals, because they were compatible with natural selection. For the most part, natural selection ought to have also given people instincts as well suited to these goals as possible.

    It’s easy to overstate this point. Obviously, our instincts operate at a certain level of generality. It may be impossible for our minds to evolve to successfully confront every specific problem, so evolution may emphasize certain heuristic devices. There does seem to be no end to the number of situations for which behavioralists have shown the human mind to be very poorly equipped. Furthermore, humans’ current environment may be quite a bit different from the ones in which our intuitions evolved. As decisions become more specific and more technical, people will be more likely to need advice, or at least expert information, to make good decisions.

    For larger questions, however, I suspect that most people, most of the time, can trust their instincts. Should I quit my secure but boring job and try to become an entrepreneur? Should I dump Tom for Eric? Should I go to college, or should I get a job straight from high-school? Should I study more, or worry about my social life? Is it all right for me to drink all my earnings, or do I need to start saving for retirement? Should I settle down and start a family, or focus on my career? Our instincts may be fairly well-equipped to guide us through these decisions. At the very least, they are more trustworthy than advice-givers operating under a very different set of instincts.

  • Health Care

    People Who Aren’t Poor Shouldn’t Expect Free Stuff

    In my health care class today we discussed the CLASS Act, a part of the health care reform legislation that attempted to create an affordable benefit program for long-term (nursing) care. The program was scrapped after actuaries determined that it could not operate within the financial limits allowed. This should not have been such a surprise, as long-term care can be really, really expensive.

    Our professor noted that, in the absence of some federal long-term care entitlement, many people struggle to pay for long-term care. Medicare does not cover nursing services, though Medicaid does. However, in order to qualify for long-term coverage under Medicaid, seniors have to spend through their earnings and, in effect, impoverish themselves. “This,” our professor noted, “poses quite a dilemma.”

    My response: huh?

    Sure, it is quite a dilemma for the person who must decide between spending through their savings and foregoing long-term care, but how is it a dilemma for society or policy-makers? A person who values nursing services should buy them! Why, though, should the government pay for services of those who live above the level of wealth that society seems to have determined actually merits assistance (i.e. the level at which Medicaid and welfare are provided)?

    Surely the strangers who will be taxed to provide for these services derive little benefit for these services. Why should they be forced to pay for them, while the assets of the person who receives the benefits are shielded? The demand for long-term entitlement is a self-serving cry for distributive relief.

    Imagine a middle-class retiree with $2 million in the bank, and a lower-class retiree with only a few hundred thousand. Neither one is poor enough to qualify for Medicaid and welfare. In other words, they are not so poor that society has determined that they should receive financial assistance, forcibly obtained from wealthier people.

    If the lower-class retiree needs long-term care, he may quickly become poor enough to qualify for Medicaid. The middle-class retiree, on the other hand, may spend a million dollars, on long-term care, and still have savings well-above the level of the lower-class retiree. If society pays for his long-term care needs, they have in effect protected his financial status from erosion, while at the same time ignoring and giving no assistance to the poorer lower-class retiree.

    What possible principle could justify this? How about, “I deserve to be about as rich as I am now, even if other people are poorer.” Isn’t that a rather unprincipled assertion of privilege? My suggestion is that, at least regarding long-term care, society cannot justify paying for the entitlements of people who live above the level required for general government assistance.

    Here are the responses I received from the other members of the class.

    1. Long-term care needs can be unexpected.

    So what? Why should we favor richer people with unexpected expenses over poorer people without them?

    2. Medicaid provides access only to awful long-term care.

    Maybe true, but a separate issue. The premise that poorer people need better long-term care does not yield the conclusion that the finances of richer people should be subsidized.

    3. The bar for Medicaid is set too low.

    Then it should be raised.

    4. A married couple may have to liquidate both of their earnings to pay for care for one of them.

    This is a poignant objection. A wife might not really assign much value to the long-term care that her husband receives, but there may not be a realistic way for her to protect her portion of the couple’s assets. She is “locked in” to his health care expenses.

    But my same argument holds here too, I think. Surely a spouse values the long-term care of their partner more than the strangers who would otherwise be forced to pay. Why should strangers be forced to pay to maintain a spouse’s lifestyle when other poorer people receive no assistance?