Bryan Caplan  

Helpful Illusions

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The Problem of Fraud... Two Events...
While I think we have a duty to believe what is true, it's possible for widespread errors to have good consequences.  Attempting to murder someone doesn't cause your head to explode.  But the world would be a better place if everyone falsely believed that it did. 

In the real world, though, the most beneficial errors are probably those that cancel out the bad effects of other errors.  Consider these two examples:

1. The public underestimates the inequality of wealth.  But as I recently told journalist Drake Bennett, this underestimate balances out the public's lack of appreciation for the social benefits of wealth inequality.

2. The public probably overestimates the short-run effects of taxation on labor supply.  But this overestimate helps balance out the public's neglect of the long-run effects of taxation on career choice - as well as the public's enthusiasm for big inefficient programs like Social Security and Medicare.

Another example that I used to like was the public's overestimate of the economic costs of inflation.  In standard models of central banking, this mistake delivers a free lunch: lower inflation without loss of outcome.  Since 2008, I'm not so sure.

Other examples?  Please show your work.


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COMMENTS (9 to date)
Eelco Hoogendoorn writes:

I wonder how this impact of inflation is calculated. The tax on holding cash can easily be gauged, but then again, thats not the problem at all.

The indirect cost of not really having a clue whether signing the long term contract in front of you means winning the jackpot or signing yourself into slavery, how is that accounted for?

Given that most supposed economists systematically ignore the latter effect, I wouldnt be surprised if they got beaten by intuition in guessing at the real cost.

agnostic writes:

People trust experts way too much. That would be fine if they were experts of artifacts, like a car mechanic, but so-called experts of natural kinds (nutritionist, psychiatrist, policy analyst, economist, etc.) are and always have been bogus.

But then people also have an upwardly biased view of the power of self-improvement, personal trial-and-error, and other do-it-yourself approaches.

In some cases this doesn't cancel out the bad effects of trust in experts (like nutrition, where people do whatever they're told, like cutting out fat and binging on carbs). But across all areas this over-confidence in your self-efficacy keeps you from being exploited or merely misled by know-nothing experts.

BV writes:

Men overestimate the usefulness of washing their hands after urinating. This compensates (partially) for the error of touching the doorknob on the way into the bathroom. I say partially, because some men still touch the doorknob on the way out.

Ideally there would be no doors and no flushers in urinals (like some airports). However, washing your hands in an airport after urinating is a GOOD thing, because you probably just got off of a plane that had a sick person in it who previously touched something that you touched.

Of course I am assuming that you don't pee on your hands! :)

Jody writes:

Adding a certain degree of class to the thread...

Of course I am assuming that you don't pee on your hands! :)

Of course, unless you have a bladder infection, your urine should be sterile.

So you could choose to pee on your hands to wash off the doorknob germs (though water and soap should be less irritating).

David Friedman writes:

My standard version of this point is:

Some statements are both true and dangerous. This statement is an example.

Kurbla writes:

Very cute one, David.

Hyena writes:

Unless the public's preferences are fairly inelastic in these two cases, then you're really not doing anything at all.

Chip Smith writes:

I remember reading in Jacob Sullum's book, "For Your Own Good," that people (when surveyed) vastly overestimate the health risks associated with smoking. I'm not sure whether this signals a "hopeful illusion" or a common instance of statistical illiteracy. I guess the answer would depend on whether and to what extent a more accurate populist understanding of the (still quite significant) epidemiological risk would affect personal choices.

nzdave writes:

The public underestimates the inequality of wealth.

Perception of wealth inequality, in my opinion, is one of the under-cited explanations for the rural/urban (and blue state/red state) voting divide: people in exurban/small town/rural settings tend to encounter people within a comparatively limited income/wealth range (e.g., rural Kansas doesn’t have many multimillionaires, but doesn’t have many homeless people either), and are perhaps prone to underestimate wealth inequality, whereas people in major urban areas (such as San Fran, LA and especially Manhattan) see vast differences in wealth all the time, and if anything, are prone to overestimate the societal inequality.

Not surprising, therefore, that the latter are more likely to support more redistributive policies than the former.

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