Right now the pundit with perhaps the most outstanding record thinks Hillary Rodham Clinton has the best chance of becoming the US president, with Bill Richardson enjoying the best shot of becoming vice-president.

That pundit is not a human but rather Intrade, a political betting website (www.intrade.com) that has regularly proven more accurate than polls and political experts alike. In the last presidential election, it called the winner accurately in each of the 50 states.

That’s a tribute to what is called “the wisdom of crowds”, the notion that the collective judgment of many people is typically more accurate than the judgment of even a very well-informed individual. If you collect a bunch of guesses about, say, the weight of an ox, the average estimate will be eerily accurate.

For the record, Intrade’s bets at this very early stage give Hillary a 27 per cent chance of becoming the US president, followed by Barack Obama and Rudy Giuliani, each at about 20 per cent; Fred Thompson, 15 per cent; and Mitt Romney, eight per cent.

Yet while crowds may be good at making predictions, they’re often lousy at recognising their own self-interest. The problem is explored in the best political book this year: The Myth of the Rational Voter: Why Democracies Choose Bad Policies.

This book, by Bryan Caplan, an economist at George Mason University, does a remarkably thorough job of insulting the American voter. The cover portrays the electorate as a flock of sheep.

“Democracies frequently adopt and maintain policies harmful for most people,” Caplan notes. There are various explanations for this — the power of special interests, public ignorance of details, and so on. But Caplan argues that those accounts fall short.

“The central idea is that voters are worse than ignorant; they are, in a word, irrational — and vote accordingly.”
Caplan identifies four areas, all related to economics, of “systematic error” — where voters routinely prefer policies that are contrary to their interests. The first is a suspicion of market outcomes and a desire to control markets. The most efficient way to address climate change would be a carbon tax that would build on the market mechanism, but that’s barely on the national agenda.

The second is an anti-foreign bias, a tendency to underestimate the benefits of interactions with foreigners. That leads to counterproductive curbs on trade.

The third is a neo-Luddite bias against productivity gains that come from downsizing or “creative destruction”.
The fourth is a pessimistic bias, a tendency to exaggerate economic problems.

Caplan focuses on economics, but there is also some evidence from research in psychology of other systematic errors — for example, that we habitually exaggerate military risks compared with, say, health risks. That might explain why we’re fighting a war in Iraq as opposed to a war on diabetes.

It’s true that nobody ever made money betting on the high level of campaign discourse. When George Smathers successfully ran for the US Senate, legend has it (he denied it) that he took advantage of his constituents’ limited vocabulary by alleging that his opponent was “a shameless extrovert” who had “before his marriage, habitually practiced celibacy”.

Students usually now encounter statistics, if at all, in college. But simple statistics could easily be taught along with algebra in high school. Likewise, principles of economics could be taught in social studies classes.

This brief exposure wouldn’t solve the problems of democracy. But it might help just a bit in reducing systematic errors and biases.

Then the people might emerge with crowds that are not only brilliant at judging the weight of an ox, but also wiser in setting national policy....