In the modern world, many of the topics about which people have opinions are some distance away from any actual experience or expertise that these same people have. In this situation, people are unlikely to form their opinions with a deep dive into relevant history, data, and academic research. Instead, they are more likely to turn to a mixture of personal experience and mental models. In a 2018 paper in Behavioral and Brain Sciences, Pascal Boyer and Michael Bang Petersen referred to this as “folk economics” and discuss “Folk-economic beliefs: An evolutionary cognitive model.”
More explicitly, the authors write in the abstract for their paper:
The domain of “folk-economics” consists in explicit beliefs about the economy held by laypeople, untrained in economics, about such topics as, for example, the causes of the wealth of nations, the benefits or drawbacks of markets and international trade, the effects of regulation, the origins of inequality, the connection between work and wages, the economic consequences of immigration, or the possible causes of unemployment. These beliefs are crucial in forming people’s political beliefs and in shaping their reception of different policies. Yet, they often conflict with elementary principles of economic theory and are often described as the consequences of ignorance, irrationality, or specific biases. … Here we propose that the cultural success of particular beliefs about the economy is predictable if we consider the influence of specialized, largely automatic inference systems that evolved as adaptations to ancestral human smallscale sociality. These systems, for which there is independent evidence, include free-rider detection, fairness-based partner choice, ownership intuitions, coalitional psychology, and more. Information about modern mass-market conditions activates these specific inference systems, resulting in particular intuitions, for example, that impersonal transactions are dangerous or that international trade is a zero-sum game. These intuitions in turn make specific policy proposals more likely than others to become intuitively
compelling, and as a consequence exert a crucial influence on political choices.
To give a sense of this line of thinking, here is a (nonexhaustive) list of eight folk-economic beliefs from the authors:
- International trade is zero-sum, has negative effects.
- Immigrants “steal” jobs.
- Immigrants abuse the welfare system.
- Necessary social welfare programs are abused by scroungers.
- Markets have a negative social impact.
- The profit motive is detrimental to general welfare.
- Labor is the source of value.
- Price-regulation has the intended effects.
This list is intended to be descriptive, rather than critical. Many of these beliefs have some mixture of truth and falsehood, depending on the setting. Folk economic beliefs need not be consistent with each other: for eample, there is some conflict between the beliefs that immigrants are simultaneously taking a large number of jobs while also not working and receiving welfare benefits. The beliefs need not govern the personal behavior of individuals, either: for example, someone who believes that labor is the source of value might also rent out an extra room to a college student. The central point is that these themes are part of how a given culture has evolved, and are widely believed in a way that influences political and policy beliefs. The authors write:
As an illustration, we can consider that optimization problems such as hunting, foraging, choosing the best mate, selecting nutritious foods, and garnering social support were present, and relevant to fitness, throughout human evolution. By contrast, urban life, mass communication, rapid long-distance travel, and mass-market economies only occurred for a small duration and only in some places at first. So it is more plausible that human minds were selected for systems geared to the first kind of adaptive problems, than to the second. … The human mind, in other words, contains a rudimentary exchange psychology, evolved by natural selection to help facilitate transactions. Although it evolved within ancestral small scale hunter–gatherer groups, the cues inherent in modern markets economies (transactions, bargaining, prices, etc.) also bring it online. However, market economies are a novelty at the scale of biological evolution, so we should not expect specific adaptations to their features, as the differences between ancestral exchange and the market are vast (Rubin 2003).
As an example of how this analysis works in practice, consider the first belief that that international trade is zero-sum or negative in its effects. The authors argue that this folk-economic belief is built on beliefs about coalitional dynamics that have been relevant for much of the history of homo sapiens. They write:
[T]he statement that international trade has negative consequences … contains several pieces of information likely to activate specific inference systems. Let us consider a news headline like “China sells more to the U.S. than to Russia.” Selling involves receiving resources and, importantly, resources in this case transfer from one nation to another. In psychological terms, nations are “imagined communities” (Anderson 1983) or, with the vocabulary presented above, nations are coalitions to the mind and, hence, mention of nations activates the coalitional psychological machinery (Gat 2006; Hechter 1987a). Nations are exclusive groups, citizens of a nation are assumed to have common interests, and nations are equipped with armies to fight each other. The activation of this machinery has the downstream consequence, we argue, that Americans will evaluate the transfer of resources to China – and, hence, the headline – negatively. As argued above, one key assumption of the coalitional system, once activated about two categories or groups, is that there is a zero-sum interaction between the mutually exclusive groups. As a consequence, there is a strong prior belief that any advantage to another group is detrimental to one’s own (Hiscox 2006). Any information to the effect that other groups are prosperous, or getting better, is equivalent to a threat-cue, indicating that our group stands to lose out. … To maintain stable and efficient coalitions, humans in many different contexts must have assumed that other groups’ advantage was a potential loss.
Viewing the “international trade is bad” belief as supported by coalitional psychology does not just explain the belief but also suggests novel testable predictions. In particular, we should expect the view that trade is bad to be particularly attractive when the trading crosses perceived coalitional boundaries. It is predicted to invariably occur in the context of, precisely, debates about trade between countries. American consumers may find it intuitive that the United States might suffer from Chinese prosperity, but, on this theory, they would find it less compelling that development in Vermont damages the economy of Texas. Similarly, the survival value of the belief might depend on the relationship between the countries. Trading between long-term allies (e.g., trading between Great Britain and the United States) should be viewed as less problematic than trading between rivals (e.g., trading between China and the United States), even if all else were equal.
The notion that human brains are still adjusting to a world of impersonal exchange makes sense too me. From this perspective, one of the challenges for economics in the world of public policy is to explain economic insights in a way that sidesteps and does not trigger folk economic beliefs.
