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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
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.
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.
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