Wednesday, September 28, 2022

People placing themselves at the political extremes offer much less accurate estimates of the economy

The delusive economy: how information and affect colour perceptions of national economic performance. Lukas Linsi, Daniel Mügge & Ana Carillo-López. Acta Politica, Sep 27 2022.

Abstract: Economic knowledge plays a central role in many theories of political behavior. But empirical studies have found many citizens to be poorly informed about the official state of the economy. Analyzing two waves of the Eurobarometer database, we re-examine the distribution of public knowledge of three macroeconomic indicators in two dozen European countries. Respondents with high income and education give more accurate estimates than others, in line with previous studies. As we show, however, such differences in knowledge do not only reflect varying levels of information. People’s estimates are also shaped by affective dynamics, in particular a more pessimistic outlook that leads to overestimation of official unemployment and inflation (but not growth) figures. We find that emotive factors can bias inflation and unemployment estimates of respondents who find themselves in a privileged economic situation in a direction that incidentally also makes them more accurate, even though respondents are not necessarily being better informed. In real-world politics, official economic statistics thus do not function as a shared information backdrop that could buttress the quality of public deliberation. Instead, knowledge of them is itself driven by personal socio-economic circumstances.


Robustness checks

To probe the robustness of these results, Appendix Table 8 re-estimates the results from Table 2 in a model with country fixed-effects instead of random intercepts. The results are nearly identical. Taking into account the sharp decrease in ‘don’t know’ responses from the first to the second wave (shown in Table 1), we also compare the results of the 2007 survey and the 2015 survey separately in Appendix Tables 9 and 10. Encouragingly, the results are very similar in substantive terms, indicating that the increase in responses after the crisis does not drive our findings about the general dynamics at play. One interesting difference concerns the result about ideological distance from the incumbent government whose estimates appear to be clearly less accurate and more systematically biased in the more recent 2015 wave than in the pre-crisis survey, in line with observations about political polarization and growing misinformation on the political fringes (‘echo chamber’ effects) in recent years (Matteo et al. 2021). Otherwise the patterns in either of the waves alone are largely identical to the pooled results.


What shapes what people know about the economy? How do they relate to official economic statistics? To what degree can such data count as a shared informational background to public deliberations and the formation of individual economic assessments and preferences?

On the whole, our findings are not encouraging. In the samples of the two large-scale Eurobarometer waves we have examined, less than a third of respondents across Europe offer an estimate of the unemployment, inflation or growth rate that lies within two percentage points of the actual official figure. In that sense, public quantitative economic knowledge is wanting. Furthermore, we have found that (the lack of) such knowledge is not randomly distributed. All else equal, socio-economic insiders—such as highly educated, financially comfortable and politically centrist males—are most likely to be aware of official macroeconomic statistics. The further we move away from this privileged subgroup, the worse estimates become.

Why is that so? Our analysis suggests that it is due to a confluence of informational and affective dynamics. On the one hand, higher levels of education and an active interest in political affairs are associated with better (generally lower) estimates across the three indicators. But such informational dynamics face limitations in explaining the distribution of the (lack of) public economic knowledge on their own. For instance, we find little evidence for the idea that the accuracy of people’s information is a function of how relevant particular knowledge might be to them. There is relatively little evidence, for example, that people in socio-economic positions or employment categories for whom particular information might be especially useful also report it more accurately. Personal economic and political gloom strongly affects what people think they know about the economy—not just general assessments, but actual numbers they are willing to attach to economic conditions. For labor markets, general pessimism about the future translates into higher unemployment estimates here and now. Personal economic distress equally lets people report much higher unemployment and inflation rates than is true for people with fewer economic worries. At least in part, the higher accuracy of economic insiders’ estimates is rooted in their positive economic outlook—their optimism—rather than better knowledge per se. Across the board, we find a clear tendency, in other words, to extrapolate from one’s personal situation.

Political gloom, too, colors subjective economic knowledge. People placing themselves at the political extremes, and hence dissatisfied with the status quo, offer much less accurate estimates across the board than others, suggesting that they tune out of official information channels about economic conditions. The evidence suggests, even if less strongly so, that this results in a pessimistic bias: people at the political extremes think they know economic conditions to be worse. The same holds for citizens who distrust statistics more generally. Here too we find a strong correlation with more pessimistic economic estimates.

These findings upend models of economic opinion formation that theorize economic information as an exogenous input. At first sight, this does not augur well for deliberative democracy, which thrives on the availability of intersubjectively shared common ground–the facts everyone can agree on. (During the past years, American politics has offered a worrying illustration of what happens when that common ground crumbles.) At the same time, our analysis does not assume that official figures offer accurate or even universally useful assessments of economic conditions. They differ enough across socio-economic classes, regions and individuals to justify doubts about just how meaningful “national economic conditions” are for citizens (cf. Jacobs et al. 2021). In that view, it may be understandable after all that people are less invested in such information than common imageries would expect. Either way, our findings underline that statistics are far from the objective economic yardsticks that their champions all too often still hold them to be.