Democracy, the Market, and the Logic of Social Choice

By Samuel DeCanio

Ever since the initial study of public opinion, political scientists have found voters ignorant of basic political information.  Typically voters cannot name their representatives, describe their actions in office, or explain major policy debates.  Widespread public ignorance has been described as the strongest findings of any of the social sciences.

Despite recognizing voters’ possess little political information, voter ignorance’s implications for democratic politics are less clear.  Many argue voters can use various information shortcuts, such as the positions of liked or disliked social groups or retrospective evaluations, to compensate for their lack of encyclopedic knowledge.  However, others question both the effectiveness of heuristics and the frequency with which they are used.  Political scientists have thus reached an uneasy impasse in their study of public opinion, and the implications voter ignorance has for social decision-making remain unclear.

Instead of studying the effectiveness of psychological decision heuristics, my paper “Democracy, the Market, and the Logic of Social Choice” examines whether different institutions require different types of knowledge to make rational decisions. Specifically the paper compares the kinds of information needed by democracy and the market, and argues markets exhibit epistemic advantages over democratic politics.  However, markets’ epistemic advantages are not because consumers are well informed of their purchasing decisions, or because prices are free of error.  Rather, markets’ exhibit epistemic advantages because they facilitate comparisons that eliminate the need for the knowledge and understanding required by political decision-making.

The paper argues democratic politics exhibits difficult knowledge problems due to the singular nature of governmental decisions.  While different firms’ products exist simultaneously and can be compared against each other, governments typically impose singular policy decisions upon society that make it difficult, if not impossible, for voters to observe the effectiveness of different political parties’ policies.

For example, if the incumbent party’s monetary policy generates a certain level of unemployment, it is difficult for voters to know whether unemployment would have been lower, about the same, or perhaps even higher if another party were in power.  Since rival parties’ policies cannot be implemented simultaneously and compared against each other, politics exhibits intractable disagreements over whether different party’s policies would have produced better outcomes.  Unfortunately, the singular and unrepeatable nature of political decisions makes it difficult to test these counterfactuals in empirical reality.

The paper illustrates this problem by examining the knowledge required by the principal institutional alternative to democratic politics, namely markets.  I argue markets mitigate the problems exhibited by democratic politics because the simultaneous existence of rival firms’ products allows consumers to compare products’ effects without having to understand the knowledge responsible for producing these effects.  Instead of having to assess the accuracy of rival parties’ claims during elections, or engage in debates regarding the best way of achieving some objective, consumers can simply compare rival firms’ products against each other and select the one they prefer.

For example, when a consumer buys a cellphone, they are evaluating a product containing massive amounts of scientific knowledge they will never understand.  Yet due to the types of comparisons they can make of different firms’ cellphones, consumers don’t need to understand any of this information, nor do they have to predict the effects that would occur by changing some aspect of a cellphone’s design.  Instead, consumers can simply compare different cellphones and select one that they prefer.  Consumers’ tacit evaluations of products eliminate their need to understand, or debate, why a product is preferable to its alternatives.

The aggregation of consumers’ evaluations generates a selection process that eliminates firms that, for reasons no one may ever understand, have produced unpleasing products.  This tendency never reaches a state of perfect equilibrium, nor is it ever free from error.  However, this process systematically reveals and rewards firms that are satisfying consumer preferences, a tendency that does not occur in politics because voters cannot compare parties’ policies in the way that consumers can compare firms’ products.

The singular nature of political decisions, and the resulting epistemic difficulties exhibited by the counterfactuals voters must conduct in elections, generates intractable knowledge problems exacerbating the harmful effects of ignorance on human affairs.  Although markets exhibit numerous problems and inefficiencies, the knowledge problems democratic politics creates indicates that these problems are even more severe in politics.  Given the epistemic problems exhibited by public decisions, there are epistemic reasons to maximize the scope of markets and minimize the decisions that can be made through democratic politics.

About the author: Samuel DeCanio is an Assistant Professor in the Department of Political Science at Yale University. His article “Democracy, the Market, and the Logic of Social Choice” appeared in the July 2014 issue of the American Journal of Political Science.