Irrational Behavior at the Presidential Level

June 19, 2010

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.