When Are Monetary Policy Preferences Egocentric? Evidence from American Surveys and an Experiment

The forthcoming article “When Are Monetary Policy Preferences Egocentric? Evidence from American Surveys and an Experiment” by David H. Bearce is summarized by the author here:

In the field of political behavior, “egocentrism” refers to the idea that the beliefs of individuals about what constitutes good public policy are based largely on their own varied material considerations (e.g. their income and where they work). The field of international/ comparative political economy has built different models of egocentric preferences based on income, industry of employment and, more recently, firm-based characteristics. But recent survey research, focused largely on trade policy preferences, has found little support for egocentrism on any basis.

In our American Journal of Political Science article, we reconsider this conclusion with a focus on a different macroeconomic issue: should monetary policy be more focused on domestic or international policy goals? Given the fact that such macroeconomic issues are complex, we argue that individuals should only be able to express egocentric preferences when they have sufficient contextual information. We define “contextual information” as content about the costs and benefits of a particular policy. By itself, contextual information does not directly indicate that a policy is good or bad; instead, it summarizes the relevant policy tradeoffs. Without contextual information, expressed policy preferences on a complicated issue may largely be incoherent. But with sufficient contextual information, egocentrism may emerge.

To test this hypothesis, we focus on U.S. monetary policy since it is a complex international macroeconomic issue with relatively low informational content. We sample American monetary policy attitudes using three surveys (two nationally representative) and a survey experiment. Our surveys and experiment ascertain whether contextual information added through survey vignettes can produce egocentric monetary policy preferences.

Our results show that an American respondent whose employer does more business in overseas markets has a lesser preference for domestic monetary autonomy (findings in support of firm-based egocentrism). We also find in a survey experiment that the strength of this egocentric relationship depends on the informative power of the vignette: a more contextually informative vignette produces a stronger relationship between the individual’s overseas business activity and his/her preference against domestic monetary autonomy.