Incentives and Our Political Divide

We at nCent believe that designing the right incentive system is crucial for optimal system operation, and that this statement applies to domains far and wide. Today we’ll focus on a system that countless commentators have called a “broken system” — namely American politics.

Saying that the U.S. is divided across political lines is by now a cliché. The inauguration of each new president in recent memory brings forth media hyperbole about the chasm between Democrats and Republicans. And no, Trump is not unprecedented in this regard. In an article published way back in 2003, Yale psychologist Geoffrey Cohen asked people to evaluate two proposals related to welfare policy. One was very lax — more lax, in fact, than any actual policies present at the time. The other was very stringent, more so than any actual policy at the time. Support for these policies had nothing to do with their content. Instead, people supported and opposed these policies solely based on whether they originated by their favored or by the opposing party. Democrats supported the stringent welfare policy if they read that it was proposed by Democratic lawmakers, and Republicans supported the generous welfare policy if they read that it was proposed by Republican lawmakers. These striking findings, along with the current media bellowing about partisan conflict, seem grim — is the never-ending partisan conflict hopeless?

Support for these policies had nothing to do with their content.

We at nCent wonder about the incentive system that underlies political attitudes, and a 2015 article by political scientists John Bullock, Alan Gerber, Seth Hill, and Greg Huber caught our eye. Political divisions can have two sources. The first is a legitimate difference of opinion about the best policies of our country. The second, however, is an irrational difference of perceptions of objective facts. Is the economy doing well or poorly? Has unemployment increased or decreased? Is inflation higher or lower now than a decade ago?

These questions have objectively true answers, and yet Democrat and Republicans disagree on their answers as a function of who was president at the time. For example, despite marked decline in inflation in the 1980s during the Reagan administration, Democrats reported that they believed inflation had increased in that time. The same contradiction was true of Republications in their reports of the Clinton presidency.

Democrat and Republicans disagree on their answers as a function of who was president at the time.

What explains this? One possibility is that partisans indeed have distorted perceptions of reality. Another reason, as suggested by Bullock et al., is that partisans are motivated to act as cheerleaders for their side, and enjoy expressing their side’s superiority and the other side’s inferiority. This means that partisans may know that they are ignorant about certain issues, but would rather express statements that boost their own side and take down the other side. For example, Democrats may not know whether inflation increased or decreased in the 1980s, but they prefer saying that it increased because they are motivated to cheerlead for their side (and the same logic applies to Republicans).

If this theory is true, then simple incentives can reduce the apparent partisan conflict, because cheerleading for your own side is less appealing when you have to give up money to do it. Bullock tested this in an experiment done in 2008. The experiment asked Democrats and Republicans to answer a number of factual questions such as whether the level of unemployment increased or decreased compared to 2001, when President Bush took office. Without incentives for answering correctly, Democrats were much more likely to state that unemployment has increased than Republicans. The same pattern emerged for factual questions about the Iraq War, the budget deficit, and so on. These responses exhibit a pattern of partisan thinking, with Democrats seemingly believing that the world under Bush was dark and stormy, and Republications believing that same world was rosy and hopeful.

But the introduction of an incentive changed this picture. Some people in that experiment were randomly to receive a chance to win a lottery for $200 for every correct answer. Incentivized participants reduced the partisan gap by 55%. Moreover, in another experiment in this article, people were both incentivized for accuracy and offered the possibility of stating that they do not know the answer to a question. Some 48% of responses in that situation were, “I don’t know,” suggesting that people have some self-awareness of their ignorance about policy facts. When there are incentives to being accurate, people do not replace their own ignorance with partisan perceptions. In conclusion, external incentives can reduce the appeal of partisan cheerleading.

…a correctly designed incentive system can align interests among parties in conflict

This is a good example of the potential of incentive markets — a correctly designed incentive system can align interests among parties in conflict. People wouldn’t mind going to war with their political opponents so long as the stakes are low to non-existent. And to pundits and observers, the partisan divide seems unsolvable. To us, it’s all a matter of finding the right incentive system.

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