Question for Ilya

Is rational ignorance really the problem, or is it almost entirely “rational irrationality?” I ask because the vast majority of people are not only rationally ignorant about politics, but also about the products they purchase. How much do I really know about my Ford Flex and Honda Odyssey? Compared to how much I could know, not much.

Pro-regulation types have frequently used consumer ignorance as a rationale for product regulation, on the theory that consumers have no way of knowing about the underlying quality and safety of what they buy. But economists have pointed out that before both the expansion of federal regulatory authority and explosion of product liability lawsuits in the 1960s and 70s, products (including cars) were getting increasingly safe, often at a higher rate than after government got more involved. How could that be, when average consumers had so little information? It’s a bit mysterious, but as I understand it the average consumers implicitly (and sometimes explicitly and consciously) rely on what one might call “super-consumers,” those who for various reasons know a whole lot about the products in question. In the case of cars, for example, you have enthusiasts and hobbyists, mechanics, automotive writers for magazines like Car & Driver, insurance underwriters, and so forth. It’s these super-consumers who are disproportionately responsible for the reputation of the product in question, as various people who have contact with them rely on and spread their views, giving manufacturers in turn a huge incentive to please them by making their products better.

The analogy to political markets should be very clear. The average voter doesn’t need to know that much about politics if they could rely on political super-consumers who follow things closely. But that only works if voters are only rationally ignorant and not, as Bryan Caplan puts it, rationally irrational.

The idea here is that because no individual’s vote has any real likelihood of affecting the outcome, voters are free to vote for whichever candidate makes them feel virtuous, with no concern that their vote will actually make a difference in what policies are enacted. By contrast, a consumer has to live with whatever product he purchases, so while he may be rationally ignorant about the product, he’s not irrationally going to buy a crappy dishwasher just because it satisfies a psychological need. Of course, one purpose of advertising is to try to make consumers more like voters, i.e., to try to get them to associate the “product” with warm and fuzzy feelings unrelated to actual quality–I’d like to buy the world a Coke, and all that. But given real gains in product quality without much regulation, we can presume that such consumer behavior in most areas of life is more the exception than the rule.

What do you think, Ilya?