Do You Like Economics?

If you are not an economist by training or profession you might be intrigued by economics (otherwise you wouldn't be reading this book), but you do not necessarily like it. You probably find economic discourse abstruse, even counterintuitive. In this chapter I would like to explain why that is, describe a few cognitive biases that sometimes play tricks on us when we think about economic questions, and propose some ways of spreading an understanding of economics more widely.

Economics concerns all of us in our everyday lives; it is not just for experts. Once we look beyond appearances, and identify and overcome the initial obstacles, it is also accessible and fascinating.

What Prevents Our Understanding Economics

Psychologists and philosophers have long examined the factors that shape our beliefs. Numerous cognitive biases work to our advantage (which no doubt explains why they exist) but they also occasionally mislead us. We will encounter these biases throughout this book, and see how they affect our understanding of economic phenomena and our view of society. In short, what we see – or want to see – and reality are different.

We Believe What We Want to Believe, and We See What We Want to See

We often believe what we want to believe, rather than what the evidence points to. Thinkers as diverse as Plato, Adam Smith, and the great nineteenth-century American psychologist William James have all pointed out that the way we form and revise our beliefs serves to confirm the image we want to have, both of ourselves and of the world around us. When these beliefs are aggregated, they determine a country's economic, social, scientific, and geopolitical policies.

Not only are we subject to cognitive biases, we also frequently seek out things that reinforce them. We interpret facts through the prism of our beliefs; we read the newspapers and seek the company of people who will confirm us in those beliefs; and thus we stick obstinately to these beliefs, whether or not they are correct. When Dan Kahan, a professor of law at Yale University, confronted Americans who voted Democrat with scientific proof of the anthropogenic factor (the influence of human beings on global warming), he observed that they were more convinced than ever of the necessity of taking action against climate change. When Republicans were confronted with the same data, many of them were confirmed in their skepticism. Even more astonishing, this was not a matter of education or intelligence: statistically, the refusal to face up to the evidence was at least as firmly anchored in Republicans who had advanced degrees as it was in less well-educated Republicans. No one is immune to this phenomenon.

The desire to reassure ourselves about our future also plays an important role in our understanding of economic (and more generally, scientific) phenomena. We do not want to hear that the battle against global warming will be expensive. Hence the popularity in political debate of the idea of "green growth." The name suggests that in environmental matters we can have our cake and eat it too. But if it is really so easy, why hasn't it already been implemented?

We like to think that accidents and illnesses only afflict others, not ourselves or those close to us. This can lead to harmful behavior, such as driving carelessly or not looking after our health (though this is not entirely negative since worrying less improves our quality of life). In the same way, we do not want to believe the possibility that an explosion of public debt might endanger the survival of our social safety net – or at least we want to believe that someone else will foot the bill.

We all dream of a world in which the law would not have to encourage or constrain people to behave virtuously, a world in which companies would voluntarily stop polluting and avoiding their taxes, in which people would drive carefully even without police officers around. That is why movie directors (and not only of Hollywood movies) invent endings that meet our expectations. These happy endings confirm our belief that we live in a fair world where virtue wins out over vice (what the sociologist Melvin Lerner called "belief in a just world").

When populist parties on both the right and the left promote the vision of an economy free of difficult choices, anything that questions this sugarcoated fairytale is perceived at best as scaremongering, at worst as lies put about by global warming fanatics, austerity ideologues, or other enemies of humanity. The insistence on reality rather than fairytale is one reason why economics is often called "the dismal science."

What We See and What We Don't See

First Impressions and Heuristics

The teaching of economics is usually based on the theory of rational choice. To describe the behavior of an individual, economists start by describing his or her objectives. Whether the individual is selfish or altruistic, seeking profit or social recognition, or has some other ambition, in every case he or she is assumed to act as far as possible in his or her own interest. This hypothesis is sometimes applied too strongly, and not only because an individual does not always have the necessary information to make a good choice. As the victim of cognitive biases, this agent is also likely to make a mistake when evaluating the best way to attain an objective. Humans are subject to many biases in reasoning or perception. These biases do not invalidate the theory that rationality defines the choices that individuals ought to make to act in their best interest (normative choices), but they explain why we don't necessarily make those choices.

We will make use of the notion of heuristics, as described by Daniel Kahneman, a psychologist who won the Nobel prize in economics in 2002. Heuristics are rules of thumb for thinking, shortcuts to an answer to a question. They are often very useful because they allow us to make decisions quickly (if we are face-to-face with a tiger, we don't have time to calculate the optimal response), but heuristics can also mislead. They channel emotion, which can be a reliable guide but can also be very ill-advised.

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