Elections do not give you the wisdom of the crowd

In his column on Monday, Matt Ridley argues that a majority of voters tend to come to the right answer surprisingly often, and even beat the experts.  The mileage you give that view will likely vary depending on what you think of Trump and Brexit. But what's interesting is why he thinks this. Ridley argues that elections benefit from something known as the wisdom of the crowd, he writes:

‘In these democratic days, any investigation into the trustworthiness and peculiarities of popular judgments is of interest.' So begins an article entitled Vox Populi, which is not about Donald Trump but was published in 1907 by Francis Galton, a pioneer of statistics, by then 85 years old. He had analysed the results of a sweepstake competition held at the West of England Fat Stock and Poultry Exhibition in Plymouth.

An ox was on display. Visitors could buy a postcard for sixpence and write their guess as to the weight of the ox, once slaughtered and dressed. Of 800 cards filled out, Galton rejected 13 as illegible and averaged the rest. The arithmetic mean of the 787 guesses came to 1,197lb. The true dressed weight of the ox was — yes — 1,197lb (Galton reported slightly different results, but recent reanalysis by Kenneth Wallis of Warwick University finds the match was exact).

The message is that a crowd is at least as wise as any expert (only one guess was spot on). In a large group of people, ignorance in one direction cancels out ignorance in another."

It's a delightful story and arguably one of Galton's most interesting discoveries (arguable because as Scott Alexander points out Galton gave us "several statistical tools including correlation and standard deviation, the use of the survey in data collecting, the term “eugenics”, the entire science of meteorology, hearing tests, the first study on the power of prayer (he prayed over random fields to see if the crops there grew higher; they didn’t), fingerprinting, the scientific investigation of synaesthesia, and a horrible warning about how not to do facial hair"). 

Ridley points to another area where the crowd beats individual experts – markets. They tend to outperform individual forecasts with remarkable–but not perfect– accuracy. It's why we at the Adam Smith Institute argue that monetary policy shouldn't be determined by a panel of wise men and women, but by a Nominal GDP futures market.

But there's a problem.  Contrary to Galton's example, in elections a voter's ignorance in one direction doesn't cancel out ignorance in another. Suppose that there was some sort of systematically incorrect belief that Oxen were 50lbs heavier than they actually are; maybe the guessers were primed with stories about heavy oxen. If that was the case then the mean guess would no longer give you right answer.

I think that this is probably the case with voting. Bryan Caplan in his excellent book The Myth of The Rational Voter lists four biases (it might be better to think of them as strong errors) that systematically lead voters to make a sub-optimal choice.

First, there's the make-work bias. People tend to confuse economic growth and job creation, but most of the real benefits of economic progress come from saving labour. It leads voters to favour government programs that make-work to the most economically beneficial ones.

Second, you've got the anti-foreign bias. People significantly underestimate the benefits of free trade and migration. Trade is often phrased as zero-sum with winners and losers (note Donald Trump's insistence that China's killing America by providing US Businesses with cheap steel and US consumers with cheap clothes). The reality is that trade deals are win-win, some winners are bigger than others but both sides are still winners.

Third, voters are overly pessimistic about economic conditions. Despite the tireless and highly commendable work people like Matt Ridley, voters systematically underrate the state of the economy in both the short and long term.

Fourth,  voters are systematically biased against market mechanisms. They tend to be overly suspicious of the profit motive. Caplan cites oil prices as an example. 74% of Americans blame them on greedy oil companies, just 11% of economists agree.

Ridley's right that a council of experts simply isn't as good as the wisdom of the crowd, but it's markets not elections that we'll get it from.