by David K. Levine, Andrea Mattozzi and Salvatore Modica on May 15, 2017
Special interests
subvert elections by lobbying, but do not have the power to win
elections, which are mostly decided by large groups. How is it the
case? Lobbying is, after all, like voting with dollars. How come
small groups win at one, and large groups at the other? Not surely
because small groups have more dollars. A larger group has more
resources: both votes and money. In the USA farmers - who are very
effective at lobbying for subsidies for themselves, in fact so
effective that each American works about 11 hours a year to pay
the farmers - control less than 2% of total income. It is scarcely
the fact that they overwhelm the rest of the population with their
riches.
But then what are the differences between voting and lobbying? In
both voting and lobbying groups exert effort - money, time, votes
- to win a prize - a piece of legislation, for example. There are
some distinctive differences in the nature of the contest however,
which have specific consequences on the final outcome. They are
highlighted in the table below.
Lobbying | Voting | Consequence | |
Rules of the Game | Winner pays | Winner and Loser pay | Degree of uncertainty |
Stakes
|
Low
|
High
|
Who
wins
|
Form
of Payment
|
Effort
useful
|
Effort
useless
|
Efficiency
|
Cost structure | Chore | Duty | Who wins |
Think first about
lobbying - about bribing a politician. Each side communicates to
the politician how much they are willing to pay to win, there is
back and forth and bids are raised until someone drops out. An
economist would describe this as a first price open auction: bids
are raised until only one bidder is left and the winner pays their
high bid. A useful concept in analyzing an auction is the
willingness to bid: the most that a bidder is willing and able to
bid if winning for sure rather than losing for sure. For example,
if the prize is a pizza and it is worth $10 to me and I have $5 in
my pocket I am willing to bid $5 since the pizza is worth more
than that and I cannot bid more than $5. If I have $15 in my
pocket my willingness to bid is $10 since I am not willing to pay
more than that for the pizza, although I can afford to do so.
The value of winning is not necessary the same to different
groups. It may be, as in the case of subsidies or trade
restrictions, that the benefit to the special interest is less
than the cost to the general public because there is an economic
distortion: in the case of some regulations such as environmental
regulations, things can go either way depending on whether the
cost of the regulation to the special interest exceeds or not the
benefit to the general public. Similarly, with civil rights the
benefit of receiving rights by the minority may greatly exceed the
benefit to the majority of denying such rights.
What happens in lobbying - in a first price open auction? The bid
is raised until the group with the lower willingness to bid drops
out at which point the group with the higher willingness to bid
wins. To a good approximation the group with the highest
willingness to bid wins the lobbying contest and pays what it
costs to match the willingness to bid of the loser. The difference
between the two willingness to bid we refer to as the surplus.
What does this tell us? First, since each group can provide only
limited effort and certainly no more that its willingness to bid,
it matters whether the size of the prize - the stakes - are high
or low. If the stakes are high then the smaller group cannot
provide enough effort to match the willingness to bid of the
larger group, so the large group is successful - regardless of
whether the prize might be worth more to the smaller group. We say
in this case that the larger group is advantaged and we see that
they earn a positive surplus. If the stakes are low both groups
are on an equal footing since both can afford to pay what the
prize is worth - in this case the group with the higher value wins
- which is after all what we would like. Overall neither the small
nor the large group is advantaged - the matter is decided by
considerations of economic efficiency.
What about voting? The rules of the game are different in voting.
Lobbying is a winner pays auction. Voting is what is known as an
all-pay auction: both groups provide effort in the form of getting
voters to the polls and that effort is spent regardless of who
wins the election. The striking fact is: as far as surplus goes
voting and lobbying are identical. In expected value the group
with the lower willingness to bid still gets nothing and the group
with the higher willingness to bid gets the difference between
their own willingness to bid and the cost of matching the
willingness to bid of the loser. This is called the tripartite
auction: see our explainer. So as far
as which group is advantaged and what the groups get in expected
value, there is no difference between lobbying and voting just
because the game is played differently.
People vote for lots
of reasons: some vote out of a sense of civic duty, others to
register their opinion - and some vote to help their side win.
Political scientists refer to those who vote to help their side
win as strategic voters: whether or not they vote depends upon
circumstances. For example in the USA 2012 presidential election
voter turnout in the electoral college swing states was 7.4%
higher than in other states: strategic voters correctly turned out
where their vote was most likely to count. Each party and its
strategic voters must decide whether to engage in the costly
effort of turning out at the polls.
What does this tell us? There are more Democrats than Republicans
in the USA, so if the Democrats turn out their strategic voters
they should win. And the same if neither party turns out their
strategic voters. But there are plenty of Republicans, so if the
Democrats do not turn out and the Republicans do the Republicans
will win.
Now suppose that Sam has a giant computer that engages in deep
mathematical big data analysis. Sam tells us: everyone is going to
turn out so the Democrats are going to win - or else he will eat a
bug. Since Sam has such a large computer and backs up his
prediction with the promise of a bug everybody should believe him.
So naturally the Republicans save the time and effort of turning
out their strategic voters: oops, Sam has to eat a bug. But
perhaps Sam should tell us that the Democrats are definitely going
to turn out and win, and the Republicans are going to stay home.
Then the Democrats should save the time and effort of turning out
their strategic voters, so all strategic voters stay home
and the Democrats still win: another bug for Sam. Fine: Sam should
predict that everyone stays home. Oops - now the Republicans
should turn out and win: yet another bug for Sam. Finally, Sam
might predict that the Republicans will turn out and the Democrats
not - in which case the Democrats will turn out and - yuck! - Sam
still has to eat that bug.
The point is: there is nothing Sam can say that if it is believed
will be correct. In economics this is known as the Lucas critique
and is the foundation of rational expectations - a theory that
says only that forecasts should be true when people believe them.
It is odd that we accept the Heisenberg uncertainty principle in
quantum mechanics where spooky particles seem to anticipate what
other are thinking - yet the idea in the social sciences that
intelligent human beings might react to forecasts and predictions
is controversial. At one time, perhaps, there was an excuse for
this - Sir Arthur Conan Doyle made exactly the same mistake as
Sam. In Doyle’s 1893 short story “The Final Problem” Holmes
outwits Moriarity by getting off the train in Canterbury.
Moriarity - despite his great intellect - foolishly believes that
Holmes will attempt to go to Dover where he will inevitably be
captured by Moriarity. There is some excuse for Doyle since the
paradox was only solved by John Von Neumann in 1928: Von Neumann
showed that the only solution is uncertainty. Nobody can know for
sure which side is going to turn out the most voters. In the
language of game theory, the turnout game - like the Moriarity
game - has no pure strategy equilibria. Why don’t we call this the
Neumann uncertainty principle?
Many reasons have been advanced why the polls sometimes fail to
predict the outcome of elections. It might be that people lie to
pollsters. This is called the Bradley effect after the California
gubernatorial election of 1982 in which a black man - Tom Bradley
- lost a narrow election to a white man - George Deukmejian -
despite polls showing that Bradley would win. It was widely argued
afterwards that the reason the polls failed was because voters
were reluctant to admit to pollsters that they would not vote for
a black man. Another possible reason could be that pollsters
are wrong because people change their minds at the last minute.
However, political scientists have not found support for this
hypothesis nor for the Bradley effect. For example Daniel J.
Hopkins in
the Journal of Politics 2009 studies a broad range of
elections and finds no support for the existence of a
Bradley effect. Furthermore even though there are many voters not
affiliated with a particular party, they have Democratic or
Republican leaning and that is a good predictor of how they will
vote.
What polls do a poor job of - and pollsters are well aware of this
- is in predicting whether people will vote and we constantly read
after the fact analysis of the form: “this year turnout among
Hispanic voters was unusually low” and so forth. But even
pundits like Nate who - unlike Sam - made the sensible prediction
that Trump had a 27% chance of winning the 2016 Presidential
election - does not seem to realize that the reason that polls do
not predict turnout is not because of inadequate data or defective
models - it is because of the Neumann principle - it is because
the polls cannot predict turnout.
There is a second fallacy that can be categorized as overreaction.
After the polls are wrong in close elections - as they often are -
people start to argue that there is something wrong with the polls
and therefore they are inaccurate even in elections that are not
close. This is not what theory tell us: it does tell us that the
outcome is uncertain when the parties are evenly matched. It also
tells us that the outcome is not so uncertain when the parties are
not evenly matched. When one party is ahead by 20% in the polls a
few weeks before the election the polls are rarely wrong.
A corollary of the
Neumann principle is what Jonathan Weinstein calls the Norwood
fallacy: the idea that whether or not a coin comes up heads or
tails carries some deep meaning about the nature of the universe.
The example Weinstein gives is of the 1991 Super Bowl. The Giants
won the game when Bills kicker Scott Norwood missed a 47-yard
field goal. Statistically a professional field goal kickers misses
at that distance about 50% of the time: so the Giants won because
they had good luck that day. This - of course - did not prevent
pundits from writing the next day how the Giants’ old-fashioned
style proved superior to the Bills’ new-fangled no-huddle offense.
Similarly we have the book by Victor Hanson Davis and published by
the respected Hoover Institute entitled Why
Trump Won. We eagerly await the sequel: Why the Coin Came Up Tails.
Next: Part 2 - Why Lobbyists Win