Tim Harford: Brexit and the power of wishful thinking [+1]
The first is that wishful thinking is surprisingly powerful. A few years ago, the economist Guy Mayraz conducted a simple experiment at Oxford university’s Centre for Experimental Social Science. Mayraz ran sessions in which the participants were shown 90 days of “wheat prices” (actually based on historical price data) and asked to predict the price of wheat on the 100th day. In addition to being paid for accurate forecasts, half the experimental subjects were told they were “bakers”, who would profit if the price of wheat fell, and half were “farmers”, who would make money if the price of wheat rose.
Logically, a farmer should make the same forecast as a baker, since the forecast does not change the outcome, and both of them are paid for accuracy. If people want to hedge even these small bets, farmers ought to forecast a lower price so that if the unwelcome outcome happens, at least they’re rewarded for their forecasting.
But that’s not what Mayraz found. Instead, nearly two-thirds of farmers predicted higher-than-average prices, and nearly two-thirds of bakers predicted lower-than-average prices. People tended to predict that their dreams would come true.
It is easy (and useless) to sneer. Yet the metropolitan elite that voted so enthusiastically to remain cherishes its own myths, and those myths did plenty to undermine the cause of remaining in the EU.
Here are four tenets of the trendy centre-left of British politics: first, soaring inequality means that ordinary people haven’t shared in the benefits of economic growth; second, rich people and big companies don’t pay taxes; third, gross domestic product (GDP) is a statistic that misses what really counts; and finally, economists are reliably wrong. Flip through The Guardian, browse the popular economics books in your local bookshop, and tell me that these ideas aren’t taken for granted among the chattering classes.
Before the referendum, Anand Menon, director of the “UK in a Changing Europe” project, was speaking at a town hall event in Newcastle. He explained that most economists thought Brexit would depress the UK’s GDP. “That’s your bloody GDP,” yelled a heckler, “not ours”.
Look again at the four articles of centre-left faith. If they are true, then surely the heckler was right. But while there is a little truth in each of these four beliefs, there is less than you might think.