"Once we make a choice or take a stand, we will encounter personal and interpersonal pressures to behave consistently with that commitment."
–Influence: The Psychology of Persuasion, Robert Cialdini
Human beings are hardwired to reduce complexity and to deal with uncertainty in order to be able to make quick decisions. It is amazing how well we navigate the complexity not just our physical environment but of our social environment as well by employing a number of tactics automatically called heuristics. I have talked about some of these tricks like confirmation bias or confabulation in the past. So let me weave this into a story of how pundits and politicians strive for consistency and how they unwittingly constrain themselves in order to achieve that goal. I think this is an important facet of the political economy we are now seeing in the sovereign debt crisis in Europe and in economic policy in the United States.
Last year, after the mid-term elections in the United States, I wrote about President Obama’s economic agenda for re-election, saying "The Administration has now moved into re-election mode. Uppermost in their mind is the need to demonstrate that they have taken the right policy steps on the economy all along. And this means making the recovery stick." Here is the part I want to focus on:
What that means is that there will be no foreclosure moratoria, and certainly no ‘fat cats on Wall Street‘ rhetoric. The Obama Administration is looking to cultivate a pro-business profile. This is why erstwhile Obama-basher and GE CEO Jeff Immelt has been brought on side as well. That’s also why Obama has brought Bill Daley into the tent as Chief of Staff. Call it the Jamie Dimon comeback – that’s what I am calling it. Call it whatever you like. The fact is the old Obama Administration already set policy early in 2009 and the new Obama Administration now has to defend it if the President wants to be re-elected, which he clearly does. [emphasis added]
What I was getting at is the very powerful force that consistency is in driving human action. I am talking more about people’s actions than their words. The fact is most people – once they have taken a decision, publicly committed to it and taken action to reinforce that commitment– most people will defend that decision come hell or high water, regardless of whether it is advantageous to do so. President Obama and his people are no different.
Here’s an example from the Cialdini book I quoted at the outset. Researchers at a New York City beach staged thefts to see if onlookers would intercede and stop the crime as it was being committed. Here’s what they did. On twenty occasions they had one of their accomplices put down a beach towel right next to an unwitting research subject. The accomplice would act like a normal beachgoer for a while and then get up and go for a little walk. While they were gone another accomplice would come along and steal one of the first accomplices possessions and try to run away. In the twenty times they tried this, four times the research subject onlooker attempted to stop the theft.
Then the researchers set up exactly the same experiment, except this time before leaving for the stroll on the beach, the first accomplice would ask the onlooker to "watch my things". What happened? In 19 of 20 occasions, the onlooker attempted to stop the crime, sometimes going so far as demanding an explanation or physically holding the second accomplice. And this was only because of a verbal promise they had made to a complete stranger a few minutes before.
That’s the power of consistency over human psychology. As Cialdini puts it:
"a high degree of consistency is normally associated with personal and intellectual strength. It is the heart of logic, rationality, stability and honesty."
It’s because consistency is associated with all of these positive traits that we add in a reductionism, automatically assuming consistency is synonymous with honesty, integrity, rationality and logic. There is a certain attractiveness to this kind of heuristic. It means you don’t have to think that much about a lot of different things. You can pull out your consistency heuristic and bang, you’ve got the answer!
This is something you see in politics. Last year, ahead of the US election, a Gallup poll revealed that
"Throughout the Bush administration, Democrats were more likely than Republicans to perceive the government as a threat. Now that a Democratic president is in office, the reverse is true."
My reaction to this obvious hypocrisy was this:
People are hypocrites. People don’t have any defensible philosophical world view that they apply systematically. It depends on who is in power and whether one feels allied to power by party affiliation.
In the United States, Democrats give Democratic Administrations a free pass, not because they are doing things that they want done but because they have a pre-conceived notion of how "threatening" those Administrations’ wielding of power is.
That’s where we sometimes err. We have associated party affiliation with actual policy when in fact there is no automatic consistency there at all. What is happening is people are saying, "I am a card carrying member of the Democratic Party. I am a Democrat because I believe in the Party and what it stands for. I have voted for Democrats for decades. I hold certain political policy choices dear. She is a democrat too. She must also hold those choices dear. Now that she is in office, I can assume she will act according to those same policy choices I hold dear." That is a false assumption.
Cialdini says this kind of thinking offers a "safe hiding place" from a complex world and people will go to great lengths to maintain consistency. He gave an example in which he and a colleague attended a Transcendental Mediation program they suspected was bogus to observe the kind of psychological tactics people like this employ in marketing their wares. Having heard the spiel, when question period came, his friend couldn’t help himself and proceeded to rip the logic of the presentation apart, leaving the speaker in tatters. At the end of questions, the presenters were confronted with a blizzard of applicants for the dodgy program nonetheless, all willing to pay upfront. Baffled by this, they asked a few why? Each had his tale of desperation as to why thy needed this program to work. They understood the arguments Cialdini’s friend made perfectly well. But one said this:
"Well, I wasn’t going to put down any money tonight because I’m really quite broke right now; I was going to wait until the next meeting. But when your buddy started talking, I knew I’d better give them my money now or I’d go home and start thinking about what he said and never sign up."
These people wanted to believe and they committed themselves in order to not have any alternative but to believe. That’s how human psychology works!
Cialdini has a lot of other breath-taking examples that reinforce the notion that people will do almost anything to defend a decision they have already committed to. In particular, people will defend decisions that they have taken action on even more than ones they have committed to verbally. Confirmation bias is a large part of that.
So what does this mean for pundits and politicians? Obviously politicians will say one thing and do another. However, when it comes to the policy decisions upon which one gets elected, most politicians will do their utmost to defend previous policy decisions as best they can.
it is increasingly clear to me that policy makers in the US, the UK and elsewhere are wedded to a previously chosen set of policy remedies. I think much of this is a function of a political need for ‘policy consistency’; government is saying: "we have already scripted out a path and committed to it. We cannot change course, if only for political reasons." So, in some sense, it makes less sense to focus exclusively on ‘advocacy blogging.’ Personally, I have been increasingly focused on understanding what constraints policy makers have set for themselves to identify a more narrowed set of likely policy paths. The goal is not to advocate one option over another per se, but rather to figure out what is likely to occur and what the consequences will be for the economy, business, households and investors.
Barack Obama has already made some historic choices. He is under great psychological pressure to defend the correctness of those choices for himself and for those in his administration also associated with those choices, and to entrench them in future policy decisions. The same goes for Ben Bernanke, Angela Merkel, David Cameron or George Papandreou.
Here’s what I expect:
- Bank bailouts: All policy makers in office that bailed out their banks will defend those bailouts. So this includes the U.S., Ireland, Germany and France. If the bailouts look to come unstuck, these countries will double down on that policy unless the most extreme of popular discontent drives the other way. The Irish example is the most obvious here. The government is very resistant to unwinding the bailout despite bringing the government’s finances to the breaking point because it would expose them to being inconsistent and being wrong – and we know how devastating being wrong can be.
- National bailouts: The governments in Germany and France have committed to the aid packages to Greece, Ireland and Portugal. The reason we are seeing such angst now is because they will not undo these decisions unless the most extreme popular sentiment forces them to. Since France and Germany hold the most power in the euro zone, we should expect bailouts to continue. They will put their full force behind defending prior policy with future policy in order to be consistent – this despite repeated defeats in regional elections. On the other side, we have the Greeks and the Spanish where the government is the same. They will not change course. More policy room is available in Ireland and Portugal, where governments have changed or are changing. We also see changes in government in places like Finland, which could add a wild card to the sovereign debt crisis.
- Austerity: It will continue in the UK because popular sentiment is not driving against it. In Ireland, Greece, Spain and Portugal, sentiment has become or will become so volatile that a change in course will eventually be necessary. But expect incumbent politicians who have already committed to austerity to back it until they are voted out of office .
Those are my initial thoughts. I can think of a lot of ways in which this impinges on likely policy choices. The bottom line however is that once politicians set policy and commit to it by signing it into existence, they would rather risk losing office than change course. And that will have grave implications in the US, the UK and the euro zone.