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.