Stefanie Stantcheva

December 17th, 2019

"Understanding Economics: what do people know and learn?"

Abstract

In this paper, I study how well people understand and can learn about four economic policies: i) Personal income taxation, ii) Estate taxation, iii) Health insurance, iv) Trade. To that end, I run large-scale online surveys and experiments on representative U.S. samples and ask respondents a series of questions designed to get a picture of not only their factual knowledge about policies, but also their knowledge of the underlying economic phenomena, their understanding of the mechanisms of each policy, in particular its efficiency and distributional implications, and what first-order considerations come to their mind if they are prompted to think about the policy, without however nudging them to think about a particular effect or another. The latter is done with open-ended questions that are subjected to textual analysis, namely topic analysis and sentiment analysis. When respondents are asked to think about the effects of policies on themselves and how they would respond to the policies, as opposed to a general higher income or middle-class person, they are quite likely to think of themselves as responding very differently and facing different consequences from anyone else. In addition, if respondents are asked to think about the effects of the policies on women more specifically, they also think differently than when prompted to think about a generic person. Also experimentally, I show people instructional videos that explain the workings and consequences of each policy, but from different perspectives. The "Distributional" perspective focuses on the distributional consequences of each policy; the "Efficiency" perspective focuses on the efficiency costs; the "Economist" perspectives focuses on the trade-off, combining both the distributional and efficiency perspectives together. Respondents do change some of their views about the mechanisms and the desirable design of some policies after seeing the instructional videos, suggesting that perhaps explanations (rather than the provision of simple facts) can be useful in the policy debate.