Irrational Behavior at the Presidential Level

I just finished reading Sway: The Irresistible Pull of Irrational Behavior by Ori and Rom Brafman, the first a graduate of Stanford Business School and the latter a psychologist. It’s a book about the psychological forces that cause us to disregard facts and logic and behave in irrational ways. It may sound a bit dry, but is actually loaded with fascinating, real-world examples of these forces at work.

As I read the book, I couldn’t help but relate it to our leaders in Washington and the policies they enact, especially trade and immigration policy. But I’m getting ahead of myself.

The first and perhaps the most important of these forces identified in the book (and the most relevant to this discussion) are as follows:

  1. Fear of loss.
  2. Commitment, coupled with optimism.
  3. Value attribution.

As an example of the first force at work, the Brafmans offer the example of an investor who holds onto a certain stock as it falls, promising himself that he will sell once it rises back to a certain level. It never does and the investor is wiped out. Although it’s irrational to assume that any stock will always rise and is immune to the market forces that could drive it into bankruptcy and wipe out its investors, and is contrary to the proven advice of financial advisors to diversify, it was the perceived fear of loss that caused this investor to self-destruct.

As an example of the second force above – commitment coupled with optimism – the Brafmans offer two examples at the presidential level. The first was LBJ’s commitment to his Vietnam strategy, which ultimately destroyed his standing with the American people, precluding a run for a second term and dashing his hopes to finish his life-long dream of building the “Great Society.” Once commited to that strategy, LBJ judged it too politically destructive to change course and admit a mistake. He began to seize upon little victories as cause for optimism that the war would ultimately be won. The second example was George W Bush’s commitment to his Iraq war strategy, and his statements about staying the course that eerily mirrored similar statements made by LBJ.

Value attribution, the third force above, is our tendency to place greater weight on data and advice from those we perceive as being knowledgeable and influential, even if that data and advice are erroneous, while ignoring those whose reputations aren’t as well-established, regardless of how sensible and logical their data and advice may be. The Brafmans serve up the example of anthropologists who for decades ignored one of the greatest anthropological discoveries of all time because the discovery was by an unknown anthropologist, while quickly accepting a “discovery” by a well-respected anthropologist that later was proven to be a hoax.

With all of that said, let’s see how these forces might be influencing President Obama and his strategies and policies as they relate to trade and immigration. I think the most obvious is the effect of the third force – value attribution – on his trade policy. With no experience in economics, it was natural that Obama would turn to someone that he and his advisors held in the highest regard in that field – Larry Summers, noted economist, former Treasury Secretary and former president of Harvard University. The credentials don’t get any better. And Summers’ advice regarding trade is to stay the course. It’s a fundamental precept of economics that free trade benefits all, and Summers is one of the world’s preeminent practitioners of economics.

The problem is that Obama is placing all of his faith in the purveyors of theory that have no basis in fact. Economics is all models and theories. Facts are the realm of the demigods and mortals of accounting and finance. Economists couldn’t be bothered. Free trade theory is no different. Because Summers says it works is good enough for Obama, in spite of a gathering mountain of evidence over decades that it generates imbalances that nearly collapsed the global economy just before he took office, and in spite of a growing chorus of voices among some economists and the majority of the American people that it’s a failure.

Obama rose to power on populist rhetoric about changing the course of trade policy – populist because most people saw a need for a change of course. Yet, once in office, he ignored the majority opinion and the facts that supported it and opted upon a stay-the-course strategy based solely on the value he places on his advisor. And now that he has chosen such a strategy, he’s committed, regardless if each new piece of data suggests that his strategy is failing. Beyond that, there’s the matter of the commitment made by the U.S. When it signed the Global Agreement on Tariffs and Trade in 1947 and now its commitment to the World Trade Organization. Although it becomes ever more clear that sticking with these commitments is an irrational course of action if he is truly interested in serving the American people and changing the American economy for the better, the level of courage required to step away from these commitments is almost insurmountable.

When it comes to immigration policy, there’s not only the matter of commitment to a tradition of welcoming immigrants, but also a fear of loss – loss of the support of the Hispanic voting bloc. Never mind the irrationality of sticking to a policy that is guaranteed to exacerbate virtually every major problem the nation faces today – unemployment, an over-dependence on foreign supplies of energy and the challenge of reducing carbon emissions – we’re committed to piling on more and more people each year for some reason that remains absolutely inexplicable. Like each president before him, Obama can’t bring himself to risk the loss of support of the Hispanic voting bloc in return for the potential gain in support that would result from enacting policies that make meaningful, measurable progress on the aforementioned challenges.

As voters, when evaluating potential policy-makers, perhaps we need to look past party affiliation, platforms and rhetoric and give more weight to a demonstrated ability to resist the pull of psychological forces toward irrational behavior and make policy decisions based on data and logic.

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10 Responses to Irrational Behavior at the Presidential Level

  1. Robert says:

    Pete,

    What do you think of Mitt Romney? I know in the past he has supported the Bush policies on trade but I’m hoping that since it is looking like he will be a front runner in the next election that some of his views will change. I do know that I was really impressed with his stance on illegal immigration in the last election as stated in a quote below:

    Deport illegal immigrants in 90 days under the ideal setting
    Q: You said that for a lot of illegal immigrants who are here, under your plan, we could deport many of them within 90 days. How could we do it that quickly?
    A: My plan is this, which is for those that have come here illegally and are here illegally today, no amnesty. Now, how do people return home? Under the ideal setting, at least in my view, you say to those who have just come in recently, we’re going to send you back home immediately, we’re not going to let you stay here. You just go back home. For those that have been here, let’s say, five years, and have kids in school, you allow kids to complete the school year, you allow people to make their arrangements, and allow them to return back home. Those that have been here a long time, with kids that have responsibilities here and so forth, you let stay enough time to organize their affairs and go home.

    Source: 2008 Republican debate at Reagan Library in Simi Valley Jan 30, 2008

    Mitt seems to be capable of making tough decisions and perhaps he’s capable of staying away from rational behavior. One can only hope.

    • Pete Murphy says:

      If that’s truly Romney’s position on illegal immigration, then that’s encouraging. I’d like to hear how he’d better enforce the border as well, and how he’d deal with employers who hire illegal immigrants. Also, I’d be interested in learning whether he has signed or pushed any legislation in Massachusetts that makes it tough on illegal immigrants there. Actions speak louder than words.

      I wasn’t fond of Romney in the last election. First of all, I’m suspicious of anyone who touts their business background as evidence that they’ll run the government in a business-like fashion. If they did run it that way, that would be one thing but too often what you get is someone who runs government in favor of big business – less regulation, more free trade deals, more tax give-aways to big oil and their ilk. Secondly, he came to Michigan during the ’08 campaign deriding Michigan as experiencing a one-state recession thanks to our Democratic governor. Since his father was once a popular governor here, that played well with a lot of Michiganders. But to me it was an indication that he was out of touch with what was really happening in the economy. By the end of ’08, we were in a 50-state near-depression.

      But I’ll keep an open mind toward Romney. He’s sure to be one of the Republican front-runners in the ’12 campaign. Right now I’m ready for a “change” toward real change instead of the “change” we got vs. the “change” we were promised. But Romney’s got to convince me he can deliver it.

  2. Robert says:

    Whoops, I meant to say “Irrational behavior”

  3. Mark Hall says:

    Well said Pete…….

    A theory is ONLY a theory until it becomes a PROVEN FACT. Only then does it become a PROVEN LAW.

    Thus, the ACTUAL realized or proven facts (comprised data, effects and results) of practicing the “Free Trade” theory for any specific nation MUST BE weighed against the PERCEIVED effects and results outlined in the theory.

    Thus far, our application of totally unrestriced “Free Trade” theory as evidenced by the accumulated data, effects and results on our economy HAS PROVEN to be a dismal failure.

    “GLOBALISM” vs. “NATIONALISM”…..

    THE FACTS ARE IN….

    WE LOSE!….

    • Pete Murphy says:

      What really gets me is that Obama seemed to understand all of that and at least promised to fix NAFTA, a rational position in light of how badly trade is tilted in favor of Mexico. So what happens when he gets in office? Absolutely nothing! It’s completely irrational, yet he does it anyway in spite of seeming to know that he’s not acting in the best interest of the American people he supposedly represents. For me, this is by far my biggest disappointment with Obama.

  4. MikeF says:

    Pete, Certainly human psychology plays a large role in ruling a human dominated world. Therefore, since humans are stark raving mad and totally irrational, our economic policies take on the same delusional aspects.

    As an example, a sort of madness that seems to infect most economists is the inability to connect inputs to outputs. As our leadership cheers on a revival of the global economy to numbers surpassing those of our current recessionary times, the physical inputs to support that revival are given little to no consideration.

    As an outstanding example of resource limitations, the Colorado River is dry as is the Rio Grande!

    • Pete Murphy says:

      Gentlemen, I’m currently indisposed and will reply to all soon.

    • Pete Murphy says:

      Agreed! And, here he is in the midst of dealing with an environmental catastrophe that is the direct result of overpopulating ourselves into a reliance on deep sea oil extraction that clearly can’t be done safely, and through it all he continues to import 1.5 million more oil consumers per year. Unbelievable! Like you said, he relies on the advice of economic experts whose field is incapable of relating inputs to outputs, and lacks the courage to revisit the most critical issue of our time – overpopulation.

  5. ClydeB says:

    Pete,

    One can only hope that “being indisposed” translates to boating and fishing. Otherwise, we pray for your rapid and complete recovery.
    Hurry back,

    Clyde

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