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Saturday, September 24, 2011

Scale 

I was going to title this post "Big Numbers Make People Stupid," but I thought this one was kinder.

Most of us do pretty well with thinking about a few orders of magnitude. We can contemplate 10s, 100s, 1,000s of things pretty naturally, and with effort can understand how these relate to millions (some of us have retirement goals of millions of dollars, and think about what it would actually take to accumulate that amount over time).

But, when we start dealing with numbers that are much larger (or smaller) than those we personally deal with regularly we don't do nearly as well (without sustained effort), and I think this leads us to many errors.

For example, people are notoriously bad at judging relative risks, and expected costs and benefits; especially when they involve things with very high impacts and very low probabilities. This causes us to be vulnerable to arguments for bad policies with respect to things like responses to terror attacks, climate change, technological innovations, etc.

Another instance of this, I think, is that the large size of government budgets makes it difficult for us to reason well about what prudent and moral governmental policies entail. There is so much money in these budgets, that many are likely to view all of their favored policies as affordable, and any shortfalls as easily handled by cutting some of their disfavored expenses and adjusting revenue policies in ways that make groups that they disfavor pay more.

All of these can be believed without doing the actual math because it's just such a gigantic pile of money (mostly taken from other people) that we have trouble taking the idea that we can't afford all of the programs that appeal to us seriously.

So, we have many people who resent, for example, the money that the US government spends on foreign aid ("When we should be focusing on problems here at home"), but favor large entitlement programs like Social Security and Medicare, thinking that cutting the former will solve the problems of the latter (even though we're talking about billions for the former and trillions for the latter). Likewise for those who think that the "rich" aren't paying their "fair share" of taxes, and that correcting that injustice will bridge the fiscal gap.

Stupid.

(Sorry, I couldn't resist.)