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Author: chris dillow   |   Latest post: Fri, 20 Oct 2017, 01:17 PM

 

How lies work

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Nick Cohen makes a good point: it is not congenital liars that should worry us, but congenital believers - those who fall for the lies of charlatans. We know that many do so: almost half of voters believed the lie that leaving the EU would allow us to spend an extra £350m a week on the NHS.

This poses the question: why do people fall for lies? Here, we can learn from behavioural economics and research (pdf) into criminal fraud. I reckon there are several factors that liars exploit in politics.

One is wishful thinking. People want to believe there's a simple solution to NHS underfunding (leave the EU!) or to low wages (cut immigration!) just as they want to believe they can get rich quick or make money by taking no risk: Ponzi schemers like Bernie Madoff play upon that last one. The wish is often the father to the belief.

Relatedly, perhaps, there are lottery-type preferences. People like long-odds bets and pay too much for them: this is why they back longshots (pdf) too much and pay over the odds for speculative shares. To such people, the fact that an offer seems too good to be true is therefore, paradoxically, tempting. A study of fraud by the OFT found:

Some people viewed responding to a scam as taking a long-odds gamble: they recognised that there was something wrong with the offer, but the size of the possible prize or reward (relative to the initial outlay) induced them to give it a try on the off-chance that it might be genuine.

There's a particular type that is especially likely to take a long-odds bet: the desperate. Lonely people are vulnerable to the romance scam; gamblers who have lost take big bets to get even; losing teams try "hail Mary" tactics. In like fashion, people who feel like they have lost out in the era of globalization were tempted to vote for Trump and Brexit.

There's another mechanism here: people are likely to turn to con-men if the alternatives have failed. Werner Troesken shows (pdf) how snake-oil sellers exploited this. They invested a lot in advertising and in product differentiation and so when other products failed they could claim that theirs would work when the others hadn't. I suspect that fund managers use a similar trick: the failure of many to beat the market leads investors simply to trust others rather than tracker funds. The fact that previous policies had failed working people thus encouraged them to try something different - be it Brexit or Trump.

Yet another trick here is the affinity fraud. We tend to trust people like ourselves, or who at least who look like ourselves. Farage's endless posturing as a "man of the people" - fag and pint in hand, not caring about "political correctness" - laid the basis for people to trust him, just as Bernie Madoff joined all the right clubs to encourage wealthy (often Jewish) folk to trust him. By contrast, the claims from the Treasury and various think-tanks that Brexit would make us poorer came from metropolitan elites who were so different from poorer working class people that they weren't trusted.

All of these tendencies have been reinforced by another - the fact that, as David Leiser and Zeev Kril have shown, people are bad at making connections in economics. The idea that Brexit would hurt us rested upon tricky connections: between the terms of Brexit and trade rules; from trade rules to actual trade; and from trade to productivity. By contrast, the idea that leaving the EU would save us money was simple and easy to believe.

Now, I don't say all this merely to be a Remoaner. Instead, I want to point out that it is not sufficient to blame the BBC for not calling out Brexiters' lies. Yes, the BBC disgraced itself during the plebiscite campaign. But we must also understand how voters fall for such mendacity. As Akerlof and Shiller write:

Voters are phishable in two major ways. First, they are not fully informed; they are information phools. Second, voters are also psychological phools; for example, because they respond to appeals such as lawnmower ads [a candidate seen mowing his own lawn is regarded as a man of the people] (Phishing for Phools, p 75)

All this raises a challenge for liberals. Many used to believe the truth would win out over lies in the marketplace for ideas. This is no longer true, if it ever were. Instead, the questions now are: what can we do about this? And what should we do? The two questions might well have different answers. But we can make a start by understanding how lies are sometimes believed.

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