ArticlePDF Available

Economic Complexities and Cognitive Hurdles: Accounting for Specific Economic Misconceptions without an Ultimate Cause Commentary on Boyer and Petersen

August 2018
Behavioral and Brain Sciences 41(e176)

DOI:10.1017/S0140525X18000420

Authors:

David Leiser

Ben-Gurion University of the Negev

Yhonatan S Shemesh

Do folk economic beliefs have an ultimate cause? We argue that in many cases, the answer is negative. Cognition is constrained in both scope (via LTM) and depth (via WM). Consequently, laypeople are challenged by concepts essential for understanding complex systems, economics included: aggregation, indirect causation, and equilibrium. We discuss several economic misconceptions arising from this acute mismatch.

Content uploaded by David Leiser

Content may be subject to copyright.

Economic Complexities and Cognitive Hurdles: Accounting for Specific

Economic Misconceptions without an Ultimate Cause

Commentary on Boyer and Petersen – BBS forthcoming

David Leiser Yhonatan Shemesh

dleiser@bgu.ac.il

Abstract

Do folk economic beliefs have an ultimate cause? We argue that in many cases, the

answer is negative. Cognition is constrained in both scope (via LTM) and depth (via

WM). Consequently, laypeople are challenged by concepts essential for understanding

complex systems, economics included: aggregation, indirect causation, and equilibrium.

We discuss several economic misconceptions arising from this acute mismatch.

Main Text

In their target article, B&P draw a distinction between proximate and ultimate

explanations for folk-economic beliefs. They argue that bias-based models explain only

how such beliefs are forged (proximate cause), not why they arise (ultimate cause), nor

do they explain the specific contents those beliefs contain. B&P argue that folk-economic

beliefs emerge, ultimately, from the operation of specialized cognitive systems, crafted

by evolution, and ‘brought online’ by the modern economic environment.

We applaud this approach, but believe that it fails to seriously consider that many folk-

economic misconceptions have no ultimate cause; they result from a 'bug', not a feature,

of human cognition. In this sense, they are no different from folk scientific or folk medical

beliefs, or those in any other complex domain (Shtulman, 2015).

The human cognitive system is severely constrained in both scope and depth. 'Scope'

refers to the range of elements brought to bear on a given issue, and it is mediated and

constrained by long-term memory. The countless pieces of information in LTM are rarely

harmonized (DiSessa, 2006; Leiser, 2001), while retrieval from LTM is strongly biased

by salience cues (Higgins, 1996). Cognitive 'depth' refers to the complexity and the

number of reasoning steps of an argument, and is bounded by the capacity of working

memory (Halford, Cowan, & Andrews, 2007; Oberauer, Süß, Wilhelm, & Sander, 2007;

Oberauer, Süß, Wilhelm, & Wittman, 2003). The notorious exiguity of WM means that

people struggle to follow the causal chains leading to and from the issues in question.

Economic theory relies on three interrelated key ideas, not readily grasped without

formal training: (1) It concerns itself with aggregated variables and treats them as causal

factors; (2) It integrates indirect effects and feedback loops into a coherent system; and

(3) It explains outcomes as equilibrium states. All three seriously challenge the limits of

both the scope and depth of our reasoning.

To illustrate with an accessible example from an unrelated domain, consider the

“fundamental law of traffic congestion” (Duranton & Turner, 2011). Lay thinking assumes

that increasing the number of lanes in a road will decrease congestion. In reality,

congestion always rises back to maximum capacity. The optimistic assumption stems

from a failure to consider feedback and to ignore equilibrium and aggregate effects.

The mismatch between our cognitive endowment and the assumptions of economics

means that people often fail to grasp the proper economic explanations when presented,

let alone identify them on their own. The resulting folk-economic beliefs are simply the

best laypeople are able to come up with.

While economists consider the aggregate, lay people focus on individuals. Pitching

explanations at the level of individual elements also impedes the understanding of other

emergent processes such as heat flow, osmosis, natural selection, or indeed, traffic

congestion. These are all processes where the complex interactions of a collection of

elements jointly cause the observable outcome. Such processes are cognitively

challenging and lead to robust misconceptions (see Chi, Roscoe, Slotta, Roy, & Chase,

2012). There is no need to refer to ancestral conditions to explain the difficulties

experienced by laypeople in cases like this. These misconceptions are not the output of

some intuitive system, but rather arise from the absence thereof.

Elsewhere, we document many consequences of the mismatch between our cognitive

makeup and economic theory (Leiser & Shemesh, 2018). Here we will focus on two of

the folk-economic beliefs discussed by B&P.

FEB#1 holds that international trade has negative consequences. According to B&P,

trade activates a coalitional psychology evolved in the ancestral context, which assumes

coalitionary interaction to be a zero-sum game. Applied to international trade, this

principle leads people to believe that when one nation transfers resources to another,

the latter is gaining something, which to them implies the former is losing.

But there is a more parsimonious explanation. The logic of comparative advantage

states that nations are better at producing some things compared to others. Therefore,

when a given nation buys from another, it is getting something at a lower price than it

would cost itself to produce. Why do people see trade as a (zero-sum) transfer rather

than a (non-zero sum) exchange? The relational complexity (Halford, Wilson, & Phillips,

1998) of two-way exchange is overwhelming: instead of focusing on Country A receiving

payment from Country B for Product K, we now have to consider also A obtaining

payment from B for Product L, and moreover realize that by obtaining K from B, and by

doing so comparatively cheaply, A is able to shift production from K to L. We contend

that the demands on working memory for the understanding of comparative advantage

are so computationally taxing as to make this account inaccessible without considerable

deliberation and effort.

Consider now FEB#8, which posits that regulations achieve their intended effects. B&P

argue that this belief is based on the assumption that supply is stable, which itself results

from the fact that the ancestral exchange environment included no changes in supply

attendant on aggregate demand. As a result, humans never evolved the cognitive

wherewithal to handle this specific aggregate dynamic.

We concur, but would add that this FEB, and others, can be better understood once we

consider the mechanisms underlying retrieval from long-term memory. As we noted, the

failure to apprehend aggregate dynamics is widespread, and does not depend on

specific ancestral conditions. Since search in LTM is constrained by salience, when

people contemplate economic problems, they tend to think of solutions stated in the

same terms as the problem, but pushing in the opposite direction. If rent-prices are too

high, the popular preference will be to cap prices, while if salaries are too low, the most

intuitive policy will be to raise the minimum wage. Similarly, if many people are

unemployed, the “obvious” solution will be to create more jobs rather than, say, increase

competitivity. That is to say, people do not trawl their long-term memory for possible

causes of the particular phenomenon but simply come up with the most direct solution

and are satisfied to leave it at that.

References

Chi, M., Roscoe, R. D., Slotta, J. D., Roy, M., & Chase, C. C. (2012). Misconceived causal explanations for

emergent processes. Cognitive Science, 36(1), 1-61.

DiSessa, A. A. (2006). A History of Conceptual Change Research: Threads and Fault Lines: Cambridge

University Press.

Duranton, G. & Turner, M.A. (2011). The Fundamental Law of Road Congestion: Evidence from US

Cities. American Economic Review, 101(6), 2616-2652.doi: 10.1257/aer.101.6.2616

Halford, G. S., Cowan, N., & Andrews, G. (2007). Separating cognitive capacity from knowledge: a new

hypothesis. Trends in Cognitive Sciences, 11(6), 236-242.

Halford, G. S., Wilson, W. H., & Phillips, S. (1998). Processing capacity defined by relational complexity:

Implications for comparative, developmental and cognitive psychology. Behavioral and Brain

Science, 21(6), 803-864.

Higgins, E. T. (1996). Knowledge activation: Accessibility, applicability, and salience. , ed. , pp. In E. T.

Higgins & A. Kruglanski (Eds.), Social psychology: Handbook of basic principles (pp. 133–168):

Guilford Press.

Leiser, D. (2001). Scattered naive theories: why the human mind is isomorphic to the internet web.

New Ideas in Psychology, 19(3), 175-202.

Leiser, D., & Shemesh, Y. (2018). How we misunderstand economics and why it matters: the Psychology of

Bias, Distortion and Conspiracy. London: Routledge.

Oberauer, K., Süß, H.-M., Wilhelm, O., & Sander, N. (2007). Individual differences in working memory

capacity and reasoning ability. In A. R. A. Conway, C. Jarrold, M. J. Kane, A. Miyake, & J. N.

Towse (Eds.), Variation in working memory (pp. 49-75): Oxford U Press.

Oberauer, K., Süß, H.-M., Wilhelm, O., & Wittman, W. W. (2003). The multiple faces of working memory:

Storage, processing, supervision, and coordination. Intelligence, 31(2), 167-193.

doi:https://doi.org/10.1016/S0160-2896(02)00115-0

Shtulman, A. (2015). How Lay Cognition Constraints Scientiﬁc Cognition. Philosophy Compass, 10(11),

785–798.

Easy or difficult? Children's understanding of how supply and demand affect goal completion

Article

May 2022

Three experiments examined children's understanding of how supply and demand affect the difficulty of completing goals. Participants were 368 predominantly White Canadians (52% female, 48% male) tested in 2017–2022. In Experiment 1, 3‐year‐olds recognized that obtaining resources is easier where supply exceeds demand than where demand exceeds supply. However, in Experiment 2, 3‐year‐olds were insensitive to supply and demand when comparing situations where demand exceeded supply to a greater or lesser degree. Finally, Experiment 3 revealed a developmental lag in 3‐ to 7‐year‐olds' understanding of how supply and demand affects goal completion: Children succeeded when contrasting a surplus and a shortage of supply relative to demand at 4;2. But they only succeeded when contrasting degrees of greater supply than demand at 5;10.

How Lay Cognition Constrains Scientific Cognition

Article

Full-text available

Nov 2015

Andrew Shtulman

Scientific cognition is a hard-won achievement, both from a historical point of view and a developmental point of view. Here, I review seven facets of lay cognition that run counter to, and often impede, scientific cognition: incompatible folk theories, missing ontologies, tolerance for shallow explanations, tolerance for contradictory explanations, privileging explanation over empirical data, privileging testimony over empirical data, and misconceiving the nature of science itself. Most of these facets have been investigated independent of the others, and I propose directions for future research that might integrate them so as to explore potential commonalities among seemingly disparate obstacles to science learning, as well as potential strategies for bridging lay cognition and scientific cognition in the context of science education.

Individual Differences in Working Memory Capacity and Reasoning Ability

Chapter

Full-text available

Mar 2008

This chapter discusses how a substantial number of studies have shown that working memory capacity (WMC) is the best single predictor identified so far of reasoning ability as measured by intelligence tests. This finding is an important step toward understanding psychometric intelligence in terms of theories from cognitive psychology. The factoranalytic approach to individual differences provides a tool to identify associations and dissociations between indicators of cognitive functions. The approach is to model the correlational structure of a large set of indicators by theoretically specified structural equation models. WMC is found to be related to measures of processing speed. One explanation is that many working memory tasks are complex span tasks that involve a processing component, and the speed of performing this component is one source of variance in complex span tasks. Currently the most successful theory of deductive reasoning is the theory of mental models.

Scattered naive theories

Article

Full-text available

Dec 2001
NEW IDEAS PSYCHOL

David Leiser

This paper constitutes an attempt to derive the epistemological consequences of what is known in cognitive, developmental, and social psychology on the nature of naive theories. The process of cognitive development and knowledge acquisition is such that uncoordinated knowledge must result. There is no process active in long-term memory to harmonize inconsistent parts. Coordination takes place in working memory (WM), and cognitive psychology has long established its extreme exiguity. Units of explanation and domains of coherence are therefore small. This is, indeed, a limitation of our cognition, but it is tenable pragmatically. Naive theories, on any one issue, do not form, psychologically, cognitively, a natural kind. These theses about how our knowledge is acquired, organized, accessed, and used help to bring out how one should think about naive theories.

Knowledge activation: Accessibility, applicability, and salience

Article

Full-text available

Jan 1996

E. Tory Higgins

Scattered naive theories: Why the human mind is isomorphic to the internet web

Article

Full-text available

Dec 2001
NEW IDEAS PSYCHOL

David Leiser

How We Misunderstand Economics and Why It Matters: The Psychology of Bias, Distortion and Conspiracy

Book

May 2018

This is the first book to explain why people usually misunderstand economic phenomena (as opposed to economic misbehavior). It explains the mismatch between the limits of our cognitive endowment and the specific way economics analyzes economic phenomena (both micro and macro). It documents numerous examples of misunderstanding and bias, and present the tools laypeople use to make sense of what is largely not understandable to them: metaphors, heuristics, ideology, reliance on psychological traits and more. The book lays out what all this means for policy makers, and makes recommendations based on the (glum) picture it documents.

A History of Conceptual Change Research: Threads and Fault Lines.

Article

Jan 2014

Andrea A. Disessa

Conceptual change research is difficult to review. Problems (what changes; why is change difficult; how does it happen?) have led only slowly to solutions, and solutions have been tentative and partial. In addition, the involvement of multiple disciplines has produced a plethora of orientations and theories. There are, in fact, no widely accepted, well-articulated, and tested theories of conceptual change. Instead, the field consists of multiple perspectives that combine many common-sense and theoretical ideas in kaleidoscopic fashion. My review aims to highlight critical threads and fault lines--the former through a historical orientation, and the latter by noting a few important changes in perspective and differences of opinion. The review ends with a set of recommendations for future work. (PsycINFO Database Record (c) 2012 APA, all rights reserved)

Corrigendum to “The multiple faces of working memory: Storage, processing, supervision, and coordination” [Intelligence 31 (2003) 167–193]

Article

Aug 2004
INTELLIGENCE

Working memory capacity was differentiated along functional and content-related facets. Twenty-four tasks were constructed to operationalize the cells of the proposed taxonomy. We tested 133 university students with the new tasks, together with six working memory marker tasks. With structural equation models, three working memory functions could be distinguished: Simultaneous storage and processing, supervision, and coordination of elements into structures. Each function was further subdivided into distinct components of variance. On the content dimension, evidence for a dissociation between verbal–numerical working memory and spatial working memory was comparatively weak.

Misconceived Causal Explanations for Emergent Processes

Article

Nov 2011
COGNITIVE SCI

Studies exploring how students learn and understand science processes such as diffusion and natural selection typically find that students provide misconceived explanations of how the patterns of such processes arise (such as why giraffes' necks get longer over generations, or how ink dropped into water appears to "flow"). Instead of explaining the patterns of these processes as emerging from the collective interactions of all the agents (e.g., both the water and the ink molecules), students often explain the pattern as being caused by controlling agents with intentional goals, as well as express a variety of many other misconceived notions. In this article, we provide a hypothesis for what constitutes a misconceived explanation; why misconceived explanations are so prevalent, robust, and resistant to instruction; and offer one approach of how they may be overcome. In particular, we hypothesize that students misunderstand many science processes because they rely on a generalized version of narrative schemas and scripts (referred to here as a Direct-causal Schema) to interpret them. For science processes that are sequential and stage-like, such as cycles of moon, circulation of blood, stages of mitosis, and photosynthesis, a Direct-causal Schema is adequate for correct understanding. However, for science processes that are non-sequential (or emergent), such as diffusion, natural selection, osmosis, and heat flow, using a Direct Schema to understand these processes will lead to robust misconceptions. Instead, a different type of general schema may be required to interpret non-sequential processes, which we refer to as an Emergent-causal Schema. We propose that students lack this Emergent Schema and teaching it to them may help them learn and understand emergent kinds of science processes such as diffusion. Our study found that directly teaching students this Emergent Schema led to increased learning of the process of diffusion. This article presents a fine-grained characterization of each type of Schema, our instructional intervention, the successes we have achieved, and the lessons we have learned.

The Fundamental Law of Road Congestion: Evidence From US Cities

Article

Sep 2009

We investigate the relationship between interstate highways and highway vehicle kilometres travelled (VKT) in US cities. We find that VKT increases proportionately to highways and identify three important sources for this extra VKT: an increase in driving by current residents; an increase in transportation intensive production activity; and an inflow of new residents. The provision of public transportation has no impact on VKT. We also estimate the aggregate city level demand for VKT and find it to be very elastic. We conclude that an increased provision of roads or public transit is unlikely to relieve congestion and that the current provision of roads exceeds the optimum given the absence of congestion pricing.