“Perceptual bias occurs when factual beliefs deviate from reality,” two professors of political science at Florida State University wrote in a 2011 paper. “Democrats and Republicans are thought to be especially susceptible to biased information processing.”
Employing an extensive survey on a large number of topics over two decades, Jason Barabas and Jennifer Jerit concluded that people see the world in a manner consistent with their political views. Political partisans, they said, had “higher levels of knowledge for facts that confirm their world view and lower levels of knowledge for facts that challenge them.”
Sound familiar in our era of fake facts and fake news? A growing body of literature on the border between social psychology and economics has recently published startling insights about how political views affect expectations and patterns of behavior.
Citizen expectations “probably depend on whom one supported for president,” a Federal Reserve Bank of New York study found in January of this year. Financial expectations of respondents in GOP counties improved after the 2016 election, the paper by John J. Conlon and Basil Zafar concluded, while expectations in Democratic counties dropped. Interestingly, both Republicans and Democrats thought the stock market would go up after Donald Trump’s election, as it did, with the Republicans expecting a more robust “Trump bump.”
According to the research, partisan bias and what is called “affective polarization” has been increasing over time, exerting a more powerful influence over the formation of economic expectations. The effect on expectations of the election of Donald Trump, reported a paper published this July called “Partisan Bias, Economic Expectations and Household Spending,” was six times larger than the increase in expectations for those supporting George W. Bush had been in 2000.
The researchers, however, were unable to detect higher actual spending after the election on the part of Trump supporters. “Partisan bias is exerting a stronger influence on economic expectations over time, but shifts in economic expectations driven by partisan bias do not appear to affect household spending,” concluded the paper by Atif Mian, Amir Sufi and Nasim Khoshkou.
A 2015 paper by Lilliana Mason of the University of Chicago had offered an explanation for this puzzling disconnect. “A partisan behaves more like a sports fan than a banker choosing an investment,” she wrote. “The connection between partisan and party is an emotional and social one, as well as a logical one.” Individuals feel elation after their team wins the White House. They feel the economy will improve. But their spending does not respond.
The University of Michigan, publishers of the mostly widely used survey of the economic expectations of American consumers, goes along with this bifurcation of behavior. “Consumers have long demonstrated their ability to form economic expectations based on actual economic developments, putting aside their political ideology,” explained survey director Richard Curtin in March. “The most straightforward expectation [in the present political climate] is that both Democrats and Republicans will moderate their extreme economic expectations.” These expectations will eventually converge, Curtin thought.
A remarkable 2014 French-Canadian study (lead author Serge Caparos) claimed to be the first to establish that political ideology was directly reflected in perceptual bias. This study established that right- and left-oriented individuals actually perceived the world differently. Scrutinizing a picture of an alignment of trees (“an ambiguous hierarchical display”), left-oriented people identified the image as several trees. Right-oriented individuals saw a forest, which the authors said “presented a stronger bias toward global perceptions linked to higher cognitive rigidity.”
Having analyzed summaries of consumer expectations and credit reports, the Federal Reserve Bank of New York issued a new blog last week offering further explanation of why partisan shifts in consumer expectations hadn’t translated into shifts in behavior. “We hypothesize that the expectations consumers report in surveys may consist of two parts: true beliefs on which they base their economic decisions and some noise,” wrote Olivier Armantier, John J. Conlon and Wilbert van der Klaauw. “If presidential elections outcomes predominantly affect the noisy component, we would expect polarization in reported expectations but no substantial divergence of behavior.”
Politics dismissed as noise? To me, that’s not a satisfactory explanation.
It’s hard not to wonder how the passage of the tax reform bill this week will affect partisan expectations — and behavior. Expect one thing: a tide of perceptual bias from both political sides.
Join the family! 
