Streetwise Professor

June 26, 2016

Brexit: A Case Study in Preference Falsification

Filed under: Economics,History,Politics — The Professor @ 6:23 pm

About 20 years ago Timur Kuran wrote Private Truth, Public Lies. The book introduces the concept of preference falsification, whereby social pressure induces people to make public statements that are contrary to their private beliefs or preferences.

Preference falsification helps explain why revolutions, especially in totalitarian countries, or in oligarchic societies with substantial hierarchical social control, seem to come from like a bolt from the blue. Because of preference falsification, widespread dissatisfaction is concealed. In response to some shock–which can be very minor–people reveal their dissatisfaction or anger simultaneously, resulting in a revolt or civil unrest.

There is a coordination game aspect to the transition between passivity and revolt. People will reveal their preference by going into the street only when they are convinced that enough other people share their views. Widespread falsification makes it difficult to know how widespread the dissatisfaction is, and tends to cause people to remain quiet and at home. But if something triggers enough people to reveal it, a cascade is triggered and the equilibrium flips from no one revealing to everyone revealing.

In the UK, it is clear that numerous individuals were concealing their true preferences about Leave vs. Remain. The elite in the UK, and the EU as a whole, mounted a campaign of insult and intimidation. They had no positive message, but engaged in fear-mongering and ad hominem. Any brave soul who put his or her head above the parapet was immediately subjected to a barrage of invective. So many people stayed hunkered down, and concealed their preferences.

Social control worked, in one sense: it kept people’s mouths shut. But unlike the revolutionary situation, there was no coordination problem, and no need for a spontaneous and simultaneous recognition that the socially ostracized beliefs were in fact widely shared in order to spark action. The Referendum allowed people to express their preferences privately, and to keep them private if they chose. People felt compelled to stifle expression of their preferences in public, but could do so in a way that did not expose them personally to obloquy if they chose not to reveal their vote. They didn’t have to coordinate, which is the main impediment to translating dissatisfaction into action. The Referendum made it easy.

Although the mechanism was somewhat different, the result was the same: an outcome that completely shocked the elite at the top of the social and power hierarchy.

Indeed, I would say that the attempt to exert social control actually affected preferences. The bullying and scorn and insult from the Remain crowd revealed a lot about who they are and what they think of those who are not them. I think it is highly likely that many who might have actually been favorably disposed to the Remain side looked at that and said: “Are these the kind of people I want running my life? Hell No!”

The unfalsification of preferences that the vote allowed is why its effect was so cataclysmic. The smug priors of the better-than set were hit by an avalanche of information about preferences. Their confidence in their popularity, and in the shared belief in their superiority, has been shattered. They now have to update their beliefs about their popularity and standing in the rest of the EU.

In a sense, the British have done the Eurogarchs a favor, by giving them a big dose of reality that should shake them from their reveries. They have time to absorb this information and adjust course.

I predict that they will not. The initial reaction–doubling down on the scorn–is a pretty good indication of that. Furthermore, they seem to be finding all sorts of ways to rationalize the outcome, and suggest that it was a one-off that reflected English (and Welsh) eccentricity.

Good luck with that.

Now the Eurogarchs are confronted with a rather daunting choice. Do they risk referenda (or other means of expressing popular preferences about the EU and its current course) in other countries? That would reduce the cost of revealing true preferences, and risk a Brexit-like outcome. But if they refuse to countenance democratic means of preference expression, the preference revelation could come in a much more destructive and violent way, through civil unrest or outright rebellion.

Societies that rely heavily on social control to induce uniformity in the expression of opinion are inherently brittle. They tend to be tidier and more orderly than societies that don’t, but more expression-tolerant societies provide means for people to blow off steam, and more importantly, to give those in government information that can induce them to change course before alienation becomes too extreme. This makes the tidy, orderly, tightly controlled societies more vulnerable to sudden and severe breakdown.

The great cultural, linguistic, and economic heterogeneity of the EU means that greater pressure is required to create homogeneity in expressions of opinion about political issues. Even greater pressure is needed when there is a big shock that raises questions about the competence of the leadership, and its consideration for the opinions of those they rule. Europe has experienced two big shocks–economic malaise, and perhaps more importantly, the refugee crisis.

This means that the EU is particularly vulnerable to preference falsification at present. It is also acutely vulnerable to a shattering of its brittle structure when those preferences are revealed. For this reason, I would say that the expectation should be that the EU will muddle through, but there is a substantial tail risk that it will shatter into 28 pieces. And when it does, it will not go with a whimper, but a bang.

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17 Comments »

  1. @SWP…You are quite correct. A key concept you introduce is the very apt use of the word ‘bully’.
    The Euro elites, who have the PR agents and complicit news organizations, bullied the opposition, in this case the ‘Leave’ vote. They made more noise than the Leave, got more facetime and more ink by the ‘news’ organizations, but all that overstated their popularity. And the scorn is not forgotten by the scorned.
    For other reasons and for a long time (since the mid-90s) prior to the immigration issue and Brexit, I have been saying that the Europe is doomed. The United States needs to get over the ‘discovery’ of this obvious condition, and get around to dealing with and adjusting to the reality that Europe is doomed.

    Comment by Richard Whitney — June 26, 2016 @ 8:00 pm

  2. And what does this mean for the US election? I see lots of “social control” effort in the universal media’s endorsement and support of Hilary. Trump has become demonized to the point in many areas he is radioactive. We could see polls failing to find his true support levels. I’m not a Trump supporter either. They should both lose!

    Comment by The Pilot — June 26, 2016 @ 9:20 pm

  3. Interestingly, Trump’s campaign is now headed by a certain Paul Manafort, known as the guy who helped bring Yanukovych back into Ukrainian politics, with the well-known consequences. Just sayin’

    Comment by Ivan — June 26, 2016 @ 11:40 pm

  4. Many of the problems with the Remain side you mentioned apply as much to the Leave side, if not more. The Leave side was just as much smug ‘Establishment’ as remain, but they care even less about the ordinary guy in the street. The problems in the UK were caused not by the EU but by its own parliament. It’s also the case that opinion polls in the run up to this referendum were pretty accurate, so people actually were expressing their true beliefs.

    Comment by Person_XYZ — June 27, 2016 @ 1:26 am

  5. I am sorry but this is just factually incorrect. The polls had been leaning towards brexit for weeks. Journalists and investors just chose to ignore them, given how inaccurate they had proven to be in the last general election. There was a moment a week or so before the referendum when the killing of Jo Cox felt like a tipping point for the remain camp, but that only lasted a couple of days.

    The “hidden preferences” had been on the front pages of the tabloid press for months if not years. They also had been reported by broadsheet reporters brave enough to venture out of London. The preferences had been in plain view for a while: people just chose not to listen.

    Comment by Tom DW — June 27, 2016 @ 3:07 am

  6. Really great argument here Prof.

    Comment by JeffreyL — June 27, 2016 @ 8:24 am

  7. Great post as usual, Prof. How much does this apply to Trump in USA? I would assume quite a bit. Betting markets have him in the low 20% range which I think is far too low.

    Comment by Bryan paris — June 27, 2016 @ 8:28 am

  8. Really? Anyone who read the British Press at any point in the past 25 years knows you are waaaay off the point. There were no “hidden preferences” mysteriously suppressed by an elite in the UK. The largest circulation newspapers (Sun, Telegraph and Mail) there have been rabidly anti-European forever, aided and abetted by an elite passing off their failings as Europe’s fault on an absolutely daily basis.

    Comment by Ronin — June 27, 2016 @ 4:21 pm

  9. @The Pilot–That’s the $64 question. There is definitely a lot of attempted social control going on to support The Beast.

    My surmise would that this is sufficient to make polls unreliable. Whether the gap between the polls and reality is sufficient to put Trump over the top, I don’t know.

    The ProfessorComment by The Professor — June 27, 2016 @ 5:45 pm

  10. Great post, Professor.

    Comment by Sakti — June 28, 2016 @ 1:14 am

  11. Given that so many commentators are emphasizing how unrational the Brexit is, I also wonder if its a case study in utimatum games. That the people voting leave actually realized that they were foregoing a “rational” gain for whatever reasons they have.

    Comment by MathiasK — June 28, 2016 @ 10:12 am

  12. […] Brexit: A Case Study in Preference Falsification (streetwiseprofessor) […]

    Pingback by 06/28/16 – Tuesday’s Interest-ing Reads | Compound Interest-ing! — June 28, 2016 @ 12:59 pm

  13. @MathiasK Or simply a case of deferred gratification, on national scale.

    “A growing body of literature has linked the ability to delay gratification to a host of other positive outcomes, including academic success, physical health, psychological health, and social competence.” https://en.wikipedia.org/wiki/Delayed_gratification

    Comment by Ivan — June 28, 2016 @ 3:32 pm

  14. This is an excellent analysis. Some of the comments try to denigrate the validity of this article, but the only relevant fact is that a Referendum remains the very best way to elicit the truth of how people feel. In a general election, I may vote for the party that gives me the best overall promises, meaning there will be some policies I don’t agree with. Proper democracy though is not just a general election vote, but that it would be supplemented by referendums on contentious issues. I live in South Africa, where it it politically incorrect to support the death penalty, but be assured that a referendum would force the ruling party to change that law – 99% of the population is held to ransom by murderers and rapists, who carry on with arrogant impunity, and given the chance the 99% would vote to rid society of them permanently.
    Switzerland is probably the most democratic country in the world with it’s referendums on serious issues – 100 000 signatures on any issue in fact compels the Govt to hold a referendum. 100 000 in a population of 8 million is 1%, so that even a minority gets to have a referendum so it’s voice heard.
    There are many official voices in the USA, and certain big media like Bloomberg, that rail against Brexit as being a vote by stupid, ignorant people. If integration is so great, and the loss of self determination so appealing, why don’t the USA, Canada, Mexico and South America form their own version of the EU? How would Americans like it if some left leaning Canadian technocrat sitting in the Union’s “Brussels” passed a law that said no more gun ownership in the US, or told South Americans they can’t eat bananas that did not conform to certain dimensions, like they do in the EU – there are even inspectors there checking banana dimensions, and getting a salary for it – there are now 170 000 EU civil servants running around imposing the will of a few idealists in their ivory towers over the many. Would the US like a policy of no border control for Mexicans – I bet if the US held a referendum on that matter today they would vote no to that.

    Comment by Andy Szokolay — June 29, 2016 @ 1:08 am

  15. i would think that the behavior of the ‘leave’ camp post-brexit would largely void this post. but i guess you are ok with lying to the populace, just do not bully them.

    Comment by erik — July 6, 2016 @ 2:49 am

  16. @erik-As fucking if the Remain side was all truth, sweetness, and light. According to them, Brexit would unleash the Four Horsemen of the Apocalypse, and worse. The fearmongering campaign was no more creditable to them than whatever Leave did.

    Whinging losers are looking at the specks in their neighbors’ eyes, and ignoring the beams in their own.

    The ProfessorComment by The Professor — July 6, 2016 @ 4:30 pm

  17. @erik-You also miss the point of my posts. They were not really about the merits of Leave vs. Remain. First and foremost they were commentaries on the cluelessness of the “elites” who are so isolated from those outside their bubble that they were totally oblivious to the discontent all around them, and instead of reacting with some humility and some recognition of their insularity masquerading as cosmopolitanism, they responded like narcissistic children thwarted by those they deemed their inferiors.

    Imitating French nobility circa 1789 is not a flattering look. From your comment, that’s an observation you might want to consider taking to heart.

    The ProfessorComment by The Professor — July 6, 2016 @ 5:50 pm

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