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JDI Roundtable on Manufacturing Competitiveness in New Brunswick

New Brunswick is not interested in positive change

Herb Emery

New Brunswick today has a status quo of no growth, an aging population, stalled resource development, deindustrialization and high and growing public debt. Despite all that, New Brunswickers believe that the way things are can carry on indefinitely. I am more pessimistic about the province’s economy, so to help inform policy decisions I have tried to provide statistics and information for New Brunswickers to consider. Yet it doesn’t seem to be working very well for putting us on a better economic path, so what am I missing?

Recently I read Michael Lewis’ biography of Daniel Kahneman and Amos Tversky, The Undoing Project: A Friendship That Changed Our Minds, describes the research partnership of two psychologists recognized by the Nobel Prize for economics in 2002. Their work about how people judge situations and make decisions when the future is unknowable has interesting insights for why New Brunswick has such a strong preference for the status quo.

Lewis highlights the absurdity of our lives in that we have no way of predicting the future, yet we need to believe that we can so that we can make decisions about just about everything we do in life. He points out that economists like me must believe that we are all capable of processing statistics and information to accurately estimate probabilities of future outcomes. With my worldview, people make mistakes with their predictions, but that isn’t a problem if they are random and not systematic occurrences.

Kahneman and Tversky showed that people aren’t very good at assessing probabilities and rely instead on rules of thumb and other strategies to judge how likely something is to happen. For example, we may look at situations similar to those that we have previously experienced and use what happened then as the best guess for what will happen this time.

We may rely on theory, ideology or belief to make our prediction about whether we can keep borrowing or if federal transfer payments will be cut. We may look to others to see what their best guess of the future is. Sometimes we interpret the passion, the heat and the volume of the statement of someone’s prediction as useful information for understanding what will happen in the future.

But these subjective approaches to evaluating probabilities can lead to systematic errors with our decisions. Our decisions are subject to “confirmation bias,” where we only pay attention to what we expect to see. When we rely on what we remember about the past, we are at risk of distorting our judgment of the future if our memories are selective or fuzzy.

And we are often limited by our imagination, which leaves us open to manipulation. Michael Lewis describes the situation where “We often decide that an outcome is extremely unlikely or impossible, because we are unable to imagine any chain of events that could cause it to occur.” He cautions that “The sheer volatility of people’s judgment of the odds – their sense of the odds could be changed by two hours in a movie theater – told you something about the reliability of the mechanism that judged those odds.”

Daniel Kahneman’s research and experience working with policy makers led him to conclude that we don’t want numerical best estimates of the odds of something happening when we prefer to rely our on “gut instinct.” Kahneman believed this is because most people’s understanding of numbers is so weak that numbers don’t communicate anything to them. “Everyone feels that those probabilities are not real – that they are just something on somebody’s mind,” Kahneman argued “No one ever made a decision because of a number. They need a story.”

The psychologists argued that people do not choose between things. People choose between descriptions of things. Amos Tversky argued that for most people metaphors “are vivid and memorable, and because they are not readily subjected to critical analysis, they can have considerable impact on human judgment even when they are inappropriate, useless, or misleading”. Yes, simple stories may be easy to understand, but they can also be misleading and falsely lead to “a feeling of certainty about inherently uncertain things.”

If I learn how to tell a better story to make New Brunswickers aware of the perils of the way things are for our maintaining our standard of living, would that be more likely to inspire change? Not likely.

People who are happy with the status quo of the economy aren’t interested in my gloomy and pessimistic stories. Kahneman and Tversky determined that “Happy people did not dwell on some imagined unhappiness the way unhappy people imagined what they might have done differently so that they might be happy.”

The psychologists concluded that people do not seek to avoid other emotions with the same energy they seek to avoid regret, which led them to propose a set of rules for understanding regret. The feeling of regret was stronger when someone “came close” but failed. Regret was closely linked to feelings of responsibility: The greater control you believe you have over the outcome of a gamble, the greater the regret if it turned out badly.

Perhaps this explains New Brunswickers’ strong belief that our economic disadvantages are beyond our control. “Market forces” get blamed a lot for business losses even when no actions were taken to help businesses deal with the market forces. This is a province where someone or something else is always responsible for bad outcomes. This may be what leads many to conclude that we lack “leadership” if a leader is someone who takes action when needed and the responsibility for the outcome whether it was in their control or not.

The aversion to feeling regret skews a person’s decision to choose a “sure thing” over a gamble. Kahneman and Tversky proposed that people interpret the status quo as the “sure thing” – something that we can have with certainty even if we take no action – whether that is true or not.

If people are happy with the status quo then taking action for change is a gamble. Kahneman and Tversky found that “The pain that is experienced when the loss is caused by an act that modified the status quo is significantly greater than the pain that is experienced when the decision led to the retention of the status quo. When one fails to take action that could have avoided a disaster, one does not take responsibility for the occurrence of the disaster.”

We would rather take no action and live with an opportunity cost – the “one that got away” – than take action and risk losing something we believe that we have. Not many of us seem bothered about the $40 billion in investment projects that did not take place in the province since 2006 or the fate of the proposed $1.5 billion Maritime Iron project.

After reading The Undoing Project, a great story, I now judge that the changes we need to make to improve our chances of avoiding an economic crisis in New Brunswick will not happen. And I now understand why my approach of presenting data and information to inform public discussion and maybe even decisions might be a waste of time.

Herb Emery is a Brunswick News columnist and the Vaughan Chair in Regional Economics at the University of New Brunswick.

This article first appeared in Brunswick News publications – August 5, 2020

The JDI Roundtable on Manufacturing Competitiveness in New Brunswick is an independent research program made possible through the generosity of J.D. Irving, Ltd. The funding supports arms-length research conducted at UNB.