Prospect Theory & The Election
“Democracy is the theory that the common people know what they want, and deserve to get it good and hard. ~ H.L. Mencken
As a follow-up to my recent post, “Education and the Election,” another thing that struck me about the voting was how prospect theory in behavioral economics explains why many gambled on Trump.
Prospect theory helps explain why voters reject safe options—say remain in the EU or elect a well-qualified Democrat candidate—in favor of riskier ones. Here’s the idea. If I offer you a choice between accepting a $50 bill, or flipping a coin and giving you either $100 or nothing, most people take the $50. They accept the sure thing. But when people are already down $50, and have the choice of either doubling to get even or lose $100, most will accept the risk. When people are losing, or believe they are, they are less risk averse.
Now it’s pretty straightforward how this applies to a choice like Clinton-Trump or Brexit-NoBrexit. In fact, the behavioral economists Quattrone and Tversky showed how prospect theory rather than rational choice theory generally explains voting. Again, if people believe they are doing poorly, and/or that others are doing better than they are, then they favor riskier candidates. As explained by Christophe Heintz:
Many of the explanations for the Brexit and Trump votes … emphasized how frustrated citizens were with their economic situation, and the effect of fear mongering discourses and appeal to lost grandeur … The political discourses of the Trump and Brexit advocates have framed the stakes in terms of losses rather than gains. The slogans “Make America great again” and “Take back control” clearly refer to the lost grandeur of the past. This sets the reference point as a lost state that was much better than the current one. Also, fear mongering is by definition talking about the frightening (negative) state in which we find ourselves. All this motivates citizens to favor risky options: the gains, even if they are unlikely, are so strongly desired that they induce discounting the very likely losses.
In conclusion, I lament: just another cognitive bug in Pleistocene brains that is unmoved by reason or evidence.
