Eureka! Economic Illiteracy as Mental Substitution By Bryan Caplan

Here’s another revelation from Kahneman’s Thinking, Fast and Slow, from his chapter on “Answering an Easier Question.” The lead-in:

A remarkable aspect of your mental life is that you are rarely stumped. True, you occasionally face a question such as 17 × 24 = ? to which no answer comes immediately to mind, but these dumbfounded moments are rare. The normal state of your mind is that you have intuitive feelings and opinions about almost everything that comes your way. You like or dislike people long before you know much about them; you trust or distrust strangers without knowing why; you feel that an enterprise is bound to succeed without analyzing it…

His next step:

I propose a simple account of how we generate intuitive opinions on complex matters. If a satisfactory answer to a hard question is not found quickly, System 1 will find a related question that is easier and will answer it. I call the operation of answering one question in place of another substitution…

Illustration:

Consider the questions listed in the left-hand column of table 1. These are difficult questions, and before you can produce a reasoned answer to any of them you must deal with other difficult issues. What is the meaning of happiness? What are the likely political developments in the next six months? What are the standard sentences for other financial crimes? How strong is the competition that the candidate faces? What other environmental or other causes should be considered? Dealing with these questions seriously is completely impractical. But you are not limited to perfectly reasoned answers to questions. There is a heuristic alternative to careful reasoning, which sometimes works fairly well and sometimes leads to serious errors.

[Kahneman’s Table 1]

Target

Question Heuristic

Question How

much would you contribute to

save an endangered species? How

much emotion do I feel when

I think of dying dolphins? How

happy are you with your life

these days? What

is my mood right now? How

popular is the president right

now? How

popular will the president be

six months from now? How

should financial advisers who

prey on the elderly be punished? How

much anger do I feel when I

think of financial predators? This

woman is running for the primary.

How far will she go in politics? Does

this woman look like a

political winner?

Kahneman continues:

The mental shotgun makes it easy to generate quick answers to difficult questions without imposing much hard work on your lazy System 2. The right-hand counterpart of each of the left-hand questions is very likely to be evoked and very easily answered. Your feelings about dolphins and financial crooks, your current mood, your impressions of the political skill of the primary candidate, or the current standing of the president will readily come to mind. The heuristic questions provide an off-the-shelf answer to each of the difficult target questions.

I had a eureka moment when I read this passage. Consider the economic illiteracy intro econ professors face behind every corner. How do students manage to combine such absurdity with such certainty? Via substitution. Faced with a genuinely difficult question, they answer a different, easier question, then conflate the answer to their question with the answer to your question. Like so:

[My Table 1′]

Target

Question Heuristic

Question Does the minimum wage help

low-skill workers? Would I be happy if employers gave

low-skilled workers a raise? What policies will make Americans

richer? What policies try to hurt people I

don’t like? Do

anti-firing laws help workers in the long-run? Is it bad to be fired? How much will Obamacare improve Americans’ health per dollar spent? How

bad do I feel when I think about sick people without insurance? What is the most efficient level of tax progressivity? How much do I admire/envy the rich?

Needless to say, economists could argue at length about which substitutions students make when we confront them with challenging questions. Better yet, we could try to empirically – even experimentally – triangulate their substitutions. Whatever the specifics, though, substitution is a plausible explanation of not only the absurdity of many popular views about how the economy works, but people’s certainty about these absurdities.

P.S. Have you ever read a more elegant account of “heuristics” than this?