The Need for Fact-Driven Economic Decisions
Author: Shreyansh Jindal, Graphics: Acasia Giannakouros
The BRB Bottomline:
Mass media and natural human instincts have created a distorted, pessimistic view of reality causing people to hold a negative worldview. Critically, their distorted perception of reality incentivizes politicians to enact poor legislation that seeks to garner support from ill-informed voter bases.
Social media has provided the public with a platform to freely raise their voices about important world issues, but only a small portion of these individuals are actually well-informed enough to come to rational and substantiated conclusions.
This lack of awareness implicitly impacts public policy and thus the economy by way of politicians pandering to misinformed votes. Understanding the need for fact-driven policy-making, organizations such as Gapminder have taken it upon themselves to spread accurate facts to the general public.
Facts! Facts! Facts!
As the world’s leading organization seeking to promote unfiltered facts, Gapminder emphasizes the importance of portraying a thruful narrative regarding numerous world issues like poverty levels and the gender divide. Hans Rosling, its founder, is notorious for having been an outspoken proponent of accurate statistics worldwide. His ideologies have trickled down to the rest of the organization, manifesting in its mission “to fight devastating ignorance with a fact-based worldview everyone can understand.” Gapminder has a famous quiz, which assesses test-takers’ knowledge on popular issues like global warming, suicide trends, and female empowerment. While these topics are among the ones that often constitute a large proportion of discussions on social media, Gapminder demonstrates that in fact, people are largely unaware of the realities regarding these issues.
The quiz consists of multiple-choice questions with three answer options, and its results shockingly indicate that chimpanzees (who choose one of the three options at random) outperform humans in knowing basic facts about current events. The data was drawn from participants all around the world, hailing from countries like Sweden, the Netherlands, and the United States; the participants were also mainly comprised of college students and educated adults.
At large, Gapminder quiz results indicate that human beings think of the world as much worse than it actually is. For example, when asked to guess the total percentage of countries that offer some form of social security benefits to people with disabilities, 95% of quiz takers answered the question incorrectly and undershot the true percentage—choosing the lowest possible answer as opposed to the highest option, the correct choice. Similarly, when asked to guess the percentage of companies where women are top managers or CEOs, 89% of participants got the question wrong by choosing the lowest possible answer as opposed to the highest option, the correct choice. By highlighting the disconnect between reality and the quiz takers’ perception of it, Gapminder is not necessarily suggesting that further change is not required. Instead, it shows that various economic and political measures implemented in the past few decades have brought about significant social progress. While it is often necessary to take constant strides forward and keep on making improvements, Gapminder suggests that it is perhaps equally as important to look back and have some perspective; if existing improvements are not acknowledged, people will continue to spend vital resources trying to solve problems that do not exist or finding solutions that already have been implemented.
The allocation of blame in this spread of misinformation often falls in the hands of media channels, who are incentivized to spread negative and thus a skewed, misleading portrayal of current circumstances. For mass-media channels, broadcasting negative news is a lot more popular with their viewer bases and therefore more profitable than broadcasting positive news. As a result, during the first year of the COVID-19 pandemic, national media coverage in the United States consisted of stories that were 89% negative. The beginning of the pandemic was already a distressing period at large, and the media only served to exacerbate that—several researchers found that the spread of news relating to death and unemployment was shared faster and reached more people than news relating to patient recovery or improvements due to vaccination.
It is also important to acknowledge that different media forms have their own limitations. People tend to be wary of public media channels due to the channels’ biases and the fact that they are unlikely to share stories that portray their associated political party in a negative sense. Private media channels, like the New York Times or Washington Post, on the other hand, are more popular and generally considered more reliable in the Western world because they are not controlled unilaterally by government entities. They are, however, incentivized by profit, thereby benefiting from publishing news articles that spread faster and evoke strong emotions. In most cases, that translates to portraying negative news.
However, Hans Rosling suggested that contrary to popular belief, the media is only partially responsible for their biased news coverage. There are certain human instincts that result in the creation of a distorted worldview. The Negativity Instinct, for example, leads people to believe that their past was better than the present. The age-old phrase “good old days” is a classic example of this phenomenon. As a common example, college students, apprehensive about future jobs and grades, often tend to think that high school was a simpler time when they were stress-free and happy. In reality, they were likely stressed about getting into colleges and grades during that time as well. Recently, former President Donald Trump used the Negativity Instinct in his successful presidential campaign slogan, “Make America Great Again,” to propel him to victory in 2016. It was a counterintuitive way of thinking—disregarding the significant advances in technology and business development over the last few decades and convincing people that the “old America” was somehow better than the “new America.” The Negativity Instinct is driven by a certain intangible sense of psychological comfort that people get by blaming their present circumstances and reminiscing fondly on their pasts as better. Another instinct that distorts our worldview is the Generalization Instinct, which causes people to defer to broad categorizations rather than understand details and nuances. For example, within the field of economics, the frequent polarization of countries between the outdated binary of “developed” versus “developing” countries serves as a prime example of the Generalization Instinct. The idea of “developed” and “developing” countries may have gotten the job done at the time they were coined. Today, that is no longer the case—there is significant variance in the socioeconomic structures within the group of countries that people generally consider “developing.” These subtle distinctions necessitate the development of better, more specific terminology in order to get a nuanced and ultimately accurate picture of the situation.
As surprising as it may sound, one of the challenges that organizations like Gapminder face is that many people are unwilling to change their opinions even after looking at the facts. It’s not because they believe that the claims or data are untrue, but because they are not comfortable with making changes to their long-held beliefs or views—a claim that was illustrated by the 2019 Economic Nobel Laureate Abhijit Banerjee in his book Good Economics for Hard Times. A case in point is migration. For a long time, migration has been a bone of contention between political parties across the globe, and citizens of each country have had difficulty reaching a consensus on whether the introduction of unskilled migrants adversely affects the native population or not. The New American National Research Council, a body of leading economists, suggests that several empirical studies have led to the same conclusion: immigration does not affect the employment rates of existing citizens and does not lead to lower wages in the country of influx. However, while discussing emotionally charged topics like immigration, people often ignore objective facts that threaten their preexisting viewpoints. This intentional ignorance makes it difficult for politicians or economists to reconcile their simultaneous obligations of coming up with policies that people are satisfied with and bringing about changes that can drive economic growth.
Furthermore, several economists and psychologists suggest that people not only continuously disagree with opinions that are unaligned with their own, but they only consume content and read facts that match their own existing biases. This is commonly referred to as confirmation bias. Confirmation bias creates a feedback loop that results in intellectual stagnation in a population, and in important contexts such as discussions about the economy can have negative effects on serious issues.
So, how do these instincts and biases affect countries’ economies and policies?
Policy and Democracy
Success in a democracy is fundamentally based on winning the popular vote and maintaining an image that will keep the public content. As a result, it, unfortunately, hinders politicians and lawmakers from creating policies that would be good for economic growth but unappealing to the voter bank.
India, one of the largest democracies in the world, faces this problem. The reservation (or the quota) system in the country for admission to national universities and government jobs is based on the centuries-old caste system. When this admissions system was originally created decades ago, the divides between castes and income levels almost always overlapped with each other, with few exceptions. In general, people belonging to a certain caste were relegated to low-paying jobs and social status. That paradigm does not represent the current reality—the association between income levels and castes is not nearly as strong as it once was. However, people in support of the dated notion that certain castes “need” government aid in order to find socioeconomic success comprise a majority of the vote bank. Even though the impracticality of the quota system is one of the very issues that both the major political parties agree upon, voter politics has made it difficult to pass laws that end the quota system.
- People around the world are largely misinformed about important issues.
- An organization called Gapminder emphasizes the importance of portraying a truthful narrative regarding numerous social issues.
- Gapminder has a quiz whose results show that people tend to think of the world as worse than it actually is.
- The quiz’s results are important because they indicate that progress has been made. As such, Gapminder suggests that it is important to recognize this progress.
- The media, which portrays negative news much more frequently than positive news, is partially to blame for the public’s disconnect between reality and their perception of it.
- Human instincts, such as the Generalization Instinct and the Negativity Instincts, are also partially responsible.
- People are hesitant to change their opinions even after being proven wrong.
- By nature of how democracy works, politicians are incentivized to prioritize implementing inefficient economic policies that attract the support of key, but misinformed voter bases over fact-driven economic policies that are more likely to be effective.