British economist Charles A. E. Goodhart writes:
Thus, people voting with their dollars are supposed to be rational and to reach an efficient outcome, but when they vote with their ballots, they may not achieve their own best interests. I have always found it difficult to perceive the logical basis for this dichotomy.
This is from his “The Free Banking Challenge to Central Banks,” Critical Review, Summer 1994.
The basis for the dichotomy is a difference in incentives. When people are spending their own money, their expenditures have a strong influence on what they get. If I decide to buy a Camry, for instance, I get a Camry. But when people vote, their vote is not determinative. To continue with the car case, if we were voting on whether Toyota Camrys or Honda Accords are provided, our individual vote has a tiny, tiny probability of influencing whether Camrys or Accords are provided. Therefore, we have little incentive to compare the two.
Economists call this “rational ignorance” and it sometimes bleeds over into what co-blogger Bryan Caplan calls “rational irrationality.”
By the way, this article is a reading for Jeff Hummel’s Masters course in Monetary Theory and Policy, a course offered by San Jose State University’s economics department. I’m watching it on Zoom, doing all the reading and homework, and learning a lot.
READER COMMENTS
Brendan Long
Mar 9 2021 at 7:56pm
Isn’t the bigger problem that I don’t have much incentive to be efficient with your money? If I’m deciding whether to buy a Kia or a Porsche, I have a pretty strong incentive not to waste my money since there’s other things I want to buy, but if I’m voting on whether you should buy me a Kia or a Porsche…
KevinDC
Mar 9 2021 at 8:23pm
This is a good point – when you decide to spend money on something, your decision is almost always totally decisive in creating end result. When you vote on something, your vote is almost always completely ineffectual in creating the end result. Given this, it would be remarkable if people’s methods for making decisions in these realms wasn’t substantially different.
There’s another factor at play here too. Individual purchases in the market are, typically, independent of each other. If there are 10 things you need to buy, you can by your preferred version of each of those 10 things. But politicians are bundled goods. When you vote for Biden or Trump (or any other politician), you’re getting all of their policy views – the ones you prefer but also the ones you oppose. If you preferred Trump on some issues and Biden on others, you can’t cast a vote for that particular mix. You cast a vote for one bundle, or the other. (Or, in my case, neither – my votes would go to third party candidates.) Indeed, it’s not even clear that voting for one of them means supporting even a majority of their policy views. You might support one on only 30% of the issues, but support the other candidate on 10% of the issues, and on that basis vote for the former. But you’d still oppose them on 70% of their platform – you’ve be “buying” something you mostly don’t want.
I’d ask Goodhart to envision having to make consumer purchases like that. When you need to buy 10 items, imagine that instead of buying your preferred version of each item, you have to choose from a few different bundles of preselected versions of those items. No substitutions among the bundles – you must take each bundle as a whole. If Goodhart can see how “voting with your dollars” on these bundles of goods is a less efficient way to achieve your interests than being able to select these goods individually (and I suspect he’d be able to see that very easily) then he should also see why “voting with your ballots” in elections is less effective at helping people achieve their interests than “voting with your dollars” in the market.
Matthias
Mar 9 2021 at 9:00pm
The closest equivalent we have in politics to voting with your wallet, is voting with your feet. (And incidentally that also entails voting with your tax dollars at the end.)
robc
Mar 10 2021 at 6:29am
Buying cable tv is probably the closest analogy in the consumer world, where you are faced with a bunch of packages that have lotsof channels you dont want to buy in them. And, not surprisingly, lots of people have decided to not vote or vote “3rd party”.
Ralph Truman Byrns
Mar 9 2021 at 9:03pm
Roughly 60 years ago, Kelvin Lancaster (1924-1999) described every unit of every good as a collection of attributes, with each attribute either servicing or detracting from some human want in some fashion. A Toyota Camry, for example, has stochastic characteristics that include expected comfort, speed, mileage, status, trade-in value, safety, and so on. A hot fudge sundae yields an expectation of various flavors — chocolate and vanilla and dairy — and a cold temperature, and a fairly predictable feel while eating and digesting, and lots of calories, a bit of nutrition (or lack of) and some guilt feelings about needing to exercise. A cigarette may yield very short term satiation of a gnawing habit for an addict, and bad breath, and dental problems, and potentially, cancer, but because humankind is assumed rational, it conjures a bit of image of maturity for young users, even while leaving a taste as if a person is licking an ash tray. A basketball came provides some visual stimulus, and fandom, and a sense of winning or losing, depending on the outcome, and a feeling of camaraderie with fellow fans, or a sense of belonging to a herd.
And so on, for every imaginable good, and every service.
Perhaps quantitatively different in some ways from political engagement, including voting, but not so terribly different qualitatively. Eh?
robc
Mar 10 2021 at 6:32am
I think that is accurate but SCALE is massively different.
A consumer item might be 7 attributes where political decisions might be 7 attributes each, so a political vote is voting on a bundle of 100,000,000 attributes.
Nick
Mar 10 2021 at 6:52am
Even granting that something has many attributes 2 important differences are that the purchase of a good is a repeatable in many cases as such even if you are whimsical on the first purchase you do get feedback and can thus improve your decision/rationality the next time. Slightly less direct but I think also important, you can also observe the impact that the good has on others who you deem to be similar to you and make an assessment. Due to the bundling of opinions in many political decisions you probably only get to make each decision once and have little to no experience of how that bundle has turned out for others let alone yourself.
Tyler Wells
Mar 10 2021 at 8:19am
A vote is an incredibly cheap thing, depending on how you feel about your opportunity cost of going to the polls. Think about how much more carefully you spend $1000 then $1.
TMC
Mar 10 2021 at 10:26am
It’s not that cheap. Last week it just cost my family of four about $24,000
David Henderson
Mar 10 2021 at 5:05pm
It’s both quantitatively and qualitatively different.
Take your hot fudge sundae. When I buy a hot fudge sundae, I get a hot fudge sundae.
When I vote for a candidate who says he’ll deliver hot fudge sundaes, I may or may not get that sundae and, more important, my vote doesn’t determine the outcome.
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