Winner of the New Statesman SPERI Prize in Political Economy 2016

Saturday 26 October 2013

Rational expectations, the media and politics

As those of you who have read a few of my posts will know, on the occasion that I venture into political science I like to push the idea that the attitudes and organisation of the media are an important part of trying to understand the political dynamic today. (See for example here and here, but also here.) To put it simply, the media help cause changes in public opinion, rather than simply reflect that opinion. Yet, if you have a certain caricature of what a modern macroeconomist believes in your head, this is a strange argument for one to make. That caricature is that we all believe in rational expectations, where agents use all readily available information in an efficient way to make decisions. If that was true when people came to form political opinions (on issues like immigration, or crime, for example), then information provided by media organisations on these issues would be irrelevant. In the age of the internet, it is fairly easy to get the true facts.

Some who read my posts will also know that I am a fan of rational expectations. I tend to get irritated with those (e.g. some heterodox economists) that pan the idea by talking about superhuman agents that know everything. To engage constructively with how to model expectations, you have to talk about practical alternatives. If we want something simple (and, in particular, if we do not want to complicate by borrowing from the extensive recent literature on learning), we often seem to have to choose between assuming rationality or something naive, like adaptive expectations. I have argued that, for the kind of macroeconomic issues that I am interested in, rational expectations provides a more realistic starting point, although that should never stop us analysing the consequences of expectations errors.

So why do I take a different view when it comes to the role of the media in politics? The answer simply relates to the costs and benefits of obtaining information. If you are trying to think about how consumers will react to a tax cut, or how agents in the FOREX market make decisions, you are talking about issues where expectation errors will be costly to the individual agents involved. So there are benefits to trying to gather information to avoid those mistakes. Compare this to political issues, like whether the government should be taking action over climate change. What are the costs of getting this wrong for the individual? Almost negligible: they may cast their vote in the wrong way. Now for society as a whole the costs are huge, but that is not the relevant thought experiment when thinking about individual decisions about whether to be better informed about climate change. Most people will reason that the costs of being better informed are quite high relative to the expected benefit, because the impact of their vote on the actual outcome of an election is negligible. [1]

Which is why, as Paul Krugman often reminds us, most people do not spend much time (on the internet or elsewhere) gathering information about issues like climate change, crime or immigration. That is a rational decision! They do, however, engage with media for other reasons, and are therefore likely to pick up information from there at little cost. So if the media distorts information, it matters.

That is my a priori conjecture, but what about evidence? Take opinions about climate change in the US. As this study (pdf) shows, a distressingly large proportion (45%) of those polled thought that there is “a lot of disagreement among scientists about whether or not global warming is happening”, whereas in fact there is near unanimity among scientists. Now you could I suppose argue that this misperception had nothing to do with Fox News or talk radio, but just reflected the fact that people wanted to believe otherwise. But that seems unlikely, as you could more easily believe that although climate change was happening, the costs of doing anything about it outweighed the benefits. Certainly those institutions dedicated to climate change denial think beliefs about the science are important.    

Here in the UK is a survey that Ipsos MORI conducted for the Royal Statistical Society and King’s College London (HT Tim Harford). The survey highlights the misperceptions they found, and in some cases errors were huge. To give two examples, the public think that £24 out of every £100 spent on benefits is claimed fraudulently, compared with official estimates of £0.70 per £100, and people think that 31% of the population are immigrants, when the official figure is 13%. In contrast, estimates of the number of people who regularly read a newspaper, or had a facebook account (where people probably had to draw on their own experience rather than stories in the media), were much more accurate.

These surveys certainly suggest that people’s views on at least some key issues are based on perceptions that can be wildly inaccurate. The UK survey also suggests there is an understandable tendency to overestimate things that are ‘in the news’: the level of unemployment was overestimated (pdf) by a factor of 2 or 3, the number of UK Muslims by a factor of 4 or 5, whereas the estimated proportion of those living in poverty was pretty close to the true figure. But it is also striking that the really wild misperceptions were on issues that tend to receive disproportionate tabloid coverage: apart from the benefit fraud example quoted above, we have

“people are most likely to think that capping benefits at £26,000 per household will save most money from a list provided (33% pick this option), over twice the level that select raising the pension age to 66 for both men and women or stopping child benefit when someone in the household earns £50k+.  In fact, capping household benefits is estimated to save £290m, compared with £5bn for raising the pension age and £1.7bn for stopping child benefit for wealthier households.”

One final point. Some of the comments on my recent post on this issue said, in effect, how typical of those on the left [2] to think that people who hold views they don’t like must have been brainwashed. But of course there are plenty on the right (almost certainly more than on the left) who spend a lot of their time complaining about media bias the other way. The refrain about liberal bias in the US media is ubiquitous, and in the UK it is mainly right wing think tanks and politicians who go on about BBC bias. And if you think that is because the BBC is biased (towards Labour, Europe etc), then unfortunately the facts suggest otherwise, as Mike Berry outlines here. In fact, if you are looking for people who honestly believe the media is not that important politically, I suspect you will find more of them on the left than the right. But wherever they come from, I think they are mistaken.

[1] Of course elections are fought over many issues, which just reinforces this point. People are also increasingly likely to be apathetic about the political process, often because ‘all political parties seem the same’. I want to talk about this view in a subsequent post.

[2] I should note that on this blog I have never said how I vote, or advised others to vote in any way. I try to either focus on the macroeconomics (and criticise politicians only when they get this wrong), or to focus on understanding political trends when I stray beyond economics. I have no problem with others doing political advocacy, as long as they are honest about it, but it is not my comparative advantage so I try and avoid it. I have of course been highly critical of the current coalition’s macro policy, but if it was a Labour government undertaking austerity (as it might have been) I would be just as critical of them. If you think I’m to the left because (a) I think policy should be evidence based, or (b) because I do not like the fact that current government policy is knowingly raising UK poverty, and (c) because I think climate change is a critical problem, then all I would say is that either you are being unfair to the political right, or that this says something really worrying about where the right is just now. 


  1. You have misunderstood my earlier post as being a claim that you are of the left.

    That was not the case.

    The claim was rather that your argument is simply a re-run of the tired claim that the silly old public suffer from 'false consciousness'.

    That false consciousness argument is a Marxist thesis.

    People are, generally speaking, poorly informed and ignorant. Frustrating when you live in a democracy. However, this is a phenomenon that has been and is true in all societies in all times and places. It was the central reason for Plato rejecting democracy and preferring government by Philosopher Kings. It is, no doubt, a maddening situation if you fancy yourself as a Philosopher King.

    It is only very recently in human history that the argument you are putting was not thought a decisive objection to democracy.

    Thinking that this problem would be removed, or even slightly mitigated, by a 'better' media might have seemed plausible, I suppose, in the 1960s, but today when most people do not follow political discourse through the press or even tv in any great numbers it is naive.

    Point me at the society where ignorance and misinformation is not endemic, and I might be persuaded that there is something that can be done about it (or that our form of media is somehow to blame for it).

  2. Here is something very interesting to ponder about 'rationality'.

    Jonathan Israel's huge project on the 'radical enlightenment' has it that the mainstream enlightenment, a largely religious and conservative enlightenment, came up with capitalism (Turgot, Hume onwards), whereas it was the radical enlightenment (Spinoza onwards) which came up with the ideas for representative democracy and human rights legislation. And these two rationalities have spent the time since just after the Thirty Years' War slugging it out in the West and now globally. (I simplify this horribly).

    As for the BBC, it is now critical that it is locked somehow into the university peer review culture. The Tories can threaten to shut the BBC down, and since Thatcher they have filled the BBC with some unsuitable staff, but the Tories cannot threaten to shut the universities down and expect this to be a game-changing act, as even the wealthy private universities in the US largely have Democrat supporting staff.

    Professorial tenure can save the BBC, or something!

  3. Simon,

    I like your argument that it is not individually rational to be an informed voter. It's rather like Mancur Olson's 'The Logic of Collective Action' arguments.

    Bryan Caplan (whose politics, I imagine, are very different from yours) applies this to the economic policies democracies support in 'The Myth of the Rational Voter: Why Democracies Choose Bad Policies'

  4. There was an interesting talk on' Philosophy Bites' about the 'Free Rider Problem', which may also be relevant.

  5. You state that, re climate change, "in fact there is near unanimity among scientists". However, I would suggest that there is, in fact, a lot of disagreement among scientists who actually know what they are talking about - a small subset of the total scientific community. As a prime example, MIT Professor of Meteorology Richard Lindzen is a very highly qualified climate change skeptic. Perhaps the ignorant public is simply listening to scientists qualified to speak on the subject.

    1. Dear anonymous, once you define "scientists who actually know what they are talking about" as those that oppose the mainstream, you are right that there is a lot of disagreement in this small group. They agree with each that the mainstream is wrong, but cannot formulate an alternative.

      I am a climate scientist and can assure everyone that there is indeed near unanimity among climate scientists about the basics: CO2 is a greenhouse gas, increasing concentrations will significantly warm the surface, the temperature is already increasing and will increase further. About details such as changes in extreme weather and the impacts there is often less agreement.

  6. Some comments on your previous post claimed that the BBC were biased about Europe not that they were biased against the right.

    Not all sceptics are right wingers and if you frame "Europe" as a single policy issue rather than a broad constitutional issue you will miss this - and much else.

    It was the left which described the EU as "a bankers ramp". Surely their most accurate forecast in recent times....

  7. Prof Simon,

    I’m not happy with your 2nd paragraph where you say “I am a fan of rational expectations..” and “we often seem to have to choose between assuming rationality and..”.

    I’m not a fan of rational expectations, nor a strong opponent. Plus I don’t think we “have to choose between assuming rationality” and anything else. I suggest we just look at the evidence and base arguments and models on that evidence.

    E.g. in the case of the Bush tax rebates, you could assume people would be totally rational and do a lot of income smoothing. The actual evidence is that people used roughly half the rebates to smooth income, and they blew half the money within a year.

  8. You miss a number of points.

    1. Reporting agencies/institutions are more and more seen as being uncredible. Similar to traditional politics. Partly rightly so it seems like a lot of windowdressing is done but partly as well to ventilate the bad feelings have about things like the present political and economic situation, their own unsecurity in it, scandals popping up etc.
    Look at global warming. basically science f'ed being scientific up and is now not seen as a credible player in the discussion. They messed up the fall out of it as well, but not as bad as I thought they would. When your credibility with large groups has gone you hgave a problem. Especially seen the fact that half of the voters vote mainly on a combination of short term own interests and emotion. And from the rest a huge majority misses a lot of the background info so makes a mixed decision. And all react slowly on gamechangers (like new science should be at least).

    2. You keep using the official definitions of things. Most of the time that will work, but not always.
    Just on a few of the above:
    Fraudulent might be defined as being able to get prosecuted and convicted by one and what they see around them by others.
    Unemployment one might go for the registered unemployed (for benefits) the other for people that could have a job but donot have one.
    Anyway a lot of stuff is kept away from the man in the street as well that is a lot more damaging when seen objectively than the status quo is. It works 2 ways, you are cherry picking.
    Like on immigration by simply implicating that it is one group or the figures for criminality in certain mainly coloured groups are not really brought into the open. Or tax revenue for certain groups of immigrants compared to average expenditure times their numbers.
    You hardly hear about these and all those that come up look in general much worse than even my downside estimates. And I donot expect the UK to be differnt. What is comparable shows it is roughly the same everywhere in the West.
    You really want to get a discussion on immigration with tax revenue and public spending per group as well as criminal stats per group on the table?

    3. News is about being new, about things people are interested in. Take the Roma children. If 2 even if stolen where all that was there the rest should be knighted. However it fits in well in news, scares people in the West have (would be a lot less if it were little negros), historical urban legend stuff etc.
    Things that go wrong get more interest than the average stuff. Take more of people's time and therefor mainly look to be present in higher numbers. Simple as that and nobody is going to change that. This has media disaster for Roma as well as dogooders written over it from the beginning.
    Here the fact that is is most likely an urban legend (and not occurs much) probably made it more newsworthy. If it would happen 10 times a day it wouldnot be news.

    4. Higher estimates are also an indication where social tensions are. Like with immigrants or muslims. And what would be a proper percentage that let things remain socially acceptable.
    Pretty clear thing. Half the immigration is Western (or Japanese), added value very few poblems, percentages are seen as low. Other half in the eyes of many (unless they are used by some to windowdress the statostics overall) much higher estimates than real.
    2 major trouble groups: blacks and muslims even higher.

  9. Part 2 (yes I know I am boring)

    5. Traditional politics have rubbished their markets. Keep promissing things you cannot deliver upon and you will get a problem sooner or later. That is probably the main reason of the rise of the populist.
    Again we see structurally the wrong counterreaction by the traditionalists: become themselves populistic and start to shout at everything populists say that it is fascist and racist. While it should have been starting to deliver (and not promissing things you can not deliver on and admit that you are wrong when you were wrong and make up for it) and look at the real weak points with the populist (only take partially over the often much better communicationstrategies, but not the policies).
    Didnot happen, most traditionals were so full of themselves that they thought people would see them as great and the populists as crap (especially when a lot of shouting is done into that direction).

    6. So you ended up with a combination of a f'ed up political system with the new competition even looking worse on policies. Hard to see them deliver anyting, not very relevant. If the product, however crappy, you currently have to buy as there is nothing else gets competition chances are a lot of the market will try it.
    Anyway politicians traditional as well play the emotion game. Osborne with housingsubsidies. And Mr Ed with energy subsidies. Pure populism by traditionals.

    7. It is about harmony between the forces in society when that is disrupted new equilibria will have to be found.
    And in a nutshell you can come up with all sort of official figures but if people are not going to buy them or want still something else it aint gonna work. A long term issue that will meet the ballotbox several times along the way.

    8. An Add) Communication strategies by traditionals are extremely poor. Which party would appoint as leader such totally unappealing figures as Brown or Mr Ed.
    Cameron has huge problems in being seen as credible on issues that are important EU and immigration. Mainly because his party is moving all over the place and he himself doesnot make enough and the right noise on them.

    9. The Roma thing as an example has disaster written all over it. They simply are a dysfunctional group in all countries they are in. Furthermore if their goal was to get a reputation as the as the biggest pile of manure in Europe they would have done a smashing job. Their reputation/image etc simply is f'ed for decades and probably centuries to come.
    A blind horse can see that getting them in a relatively large numbers in your country is a huge risk for any government. Stats show they are overrepresented in the wrong lists and they are as visible as can be and they make news when things go wrong. Simply a recipe for disaster to get them in. One big PR nightmare in the making whatever stats might say.
    Room politicians have to go against things is getting more and more limited. Credibility is low and likley to drop further and nearly everywhere you have competition. Blair was the last one in the UK with no populist alternative. And Merkel is the last on in Europe (and that has changed now).

  10. Suppose we grant that the media form opinion as well as following it. It still remains true that there is bias in many directions. If one publication declares that there is disagreement on climate change, another will claim it is a settled question. I think it is as likely that bias chooses what media to read, rather than media creating bias from nothing.

    That aside, society is not helpless here. Through history, a "borderline" between what the ordinary citizen can control and what experts own has moved towards the experts. Read autobiographies from the seventeenth century and you are reading about people who set one another's broken limbs, dressed one another's wounds, ran their own farms, made their own cheese, beer and wine, and trained one another to fight.

    Today, experts control more and more topics. When Creationists expound on origins, we simply have to observe that they haven't studied Biology or Cosmology in enough depth to have an opinion, and that's pretty much the end of it, except perhaps to another Creationist. We even have the Dunning-Kruger effect to describe people who don't know enough to even know how little they know on a topic.

    In a sense we recognize that non-specialists are going to have odd views, but we put barriers in place where odd views would cause harm. The supposed connection between MMR and Autism was certainly an odd view, but the laws on vaccination and schooling prevented much real harm form taking place.

    In a similar way, odd views about global warming are going to remain a phenomenon of opinion, as long a both major parties remain committed to following scientific advice.

    As long as society can ensure that eccentric opinions remain opinions, and don't translate into harmful actions, worrying about opinion seems a bit pointless. I would prefer not to live in a society that regulates opinion, even if it means I have to put up with the occasional flat Earther or Holocaust denier.

    In fact, I seek out opinion I don't agree with, because finding the strongest arguments that people I disagree with can deploy gives me some idea of how sound my own opinions are.


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