Risk and Choice in the Scottish Independence debate

Risk and Choice in the Scottish Independence debate

Liam Delaney, University of Stirling, and Ailsa Henderson, University of Edinburgh

The upcoming referendum on 18th September in Scotland involves the people of Scotland making the choice of remaining within the UK or becoming an independent country. The referendum question itself asks simply:

“Should Scotland be an Independent country?”

Many arguments for and against this proposition have been marshalled and repeated through the media over the last year. The Yes side argue that an Independent Scotland would have greater autonomy to create a society more suited to the needs of Scottish people, that they would be able to better invest oil and other revenues, have independence in military matters and many other potential benefits. Conversely the no-side argue that the move would be risky in terms of breaking up an existing union that is working, that it would create problems in terms of Scotland’s currency arrangements and membership of the EU and that it would create security problems, again among many other arguments. Regardless of the merits of the arguments of both sides, a key factor in the outcome will be how people perceive risk and how they are willing to take risks.

Behavioural economics is a discipline that looks at how individuals make risky choices and thus has a lot of relevance to this debate. It began with a group of pioneering psychologists questioning the assumptions of rational choice that were prevalent in Economics for much of the 20th century. Throughout the last 15 years a number of its leading practitioners have won Nobel prizes and it is having an increasing influence on economic policy. Most relevant to the referendum debate, there has been increasing interest on how insights from behavioural economics might contribute to an understanding of politics.

A number of key results from this discipline may have an important bearing on the upcoming referendum. First the idea of loss aversion whereby people feel risks more heavily than gains is directly important. The behavioural economics literature tells us that for voters, the possibility of economic losses weigh more heavily than future gains. (Kahneman and Tversky 1979) This applies to constitutional change just as it does to other decisions made by ‘homo economus’ (Wilson, 2011).  The political science literature demonstrates how referendum ‘no’ campaigns have sought to emphasize economic costs and risks, with varying degrees of success. We know less of different forms of risk – political, social – and the extent to which these prey equally on voters’ minds, how the perceived reliability of those identifying risks affects the way they are perceived by voters, and which types of voters are more susceptible to messages concerning risk and reward.

To counteract these powerful psychological tendencies, any Yes side in a referendum has to convince people to leave arrangements they currently have which is often a difficult task. Even with basic consumer products people are often very reluctant to switch to competitors even if they could get a better deal. Here, change is perceived as a risk; the bigger the perceived degree of change, the greater the possible reluctance of voters.  Switching to a new constitution involves a degree of new risk and uncertainty. Even if one accepts the arguments of the Yes side as to the benefits, such benefits do not occur with certainty and if people are very unwilling to risk new things in general then this constrains the Yes vote substantially. Many studies have indeed shown that people are inherently risk averse on average and this places a brake on social change regardless of the merits.

And yet we know that Yes campaigns in referendums can also choose to emphasize risks associated with the status quo. Certainly in the 1998 Northern Ireland referendum on the Good Friday Agreement Yes campaigners highlighted the risks of continuing without significant change. Here, the future for political future for Northern Ireland was portrayed as less certain without the agreement than with it.

A particularly important part of the Scottish debate is the changing of the currency arrangement. This creates a number of issues not just of risk willingness but also of risk perception. For individuals with pensions, deposits and other important financial contracts denominated in pound Sterling the prospect of an uncertain currency arrangement may be perceived as risky. There is a high degree of support in Scotland for constitutional options beyond the status quo, but a currency change may generate too much perceived risk for subsets of voters particularly in the context of turbulent financial markets in Europe.

Related to risk aversion is the idea of ambiguity aversion. Many studies have demonstrated that individuals, as well as not liking risk, also dislike ambiguity. The difference between risk and ambiguity is that risk involves known odds. For example, some people would prefer to have five pounds for certain rather than a coin toss to win ten pounds. Such individuals are called risk averse. However compare this to a situation where you are offered five pounds for certain versus a coin toss to win an unknown amount. Even if people are told the unknown amount might be a lot higher than five pounds, uncertainty about the odds can be very unnerving to individuals who prefer to make choices based on known information.

For all the above features, it seems clear that they will have a potentially strong role to play in determining the destiny of Scotland and the UK. However, despite these generalities, and again many of them are from the economic domain, the size of the effects in a referendum context are not yet known. A key aim of our current research is to document the magnitude of effects such as risk aversion and loss aversion as drivers of people’s choices.

It is clear that subsets of voters may be more or less influenced by risk and uncertainty.  For example, those with particularly strong feelings of Scottishness or Britishness may be more resistant to economic risk calculations than those who are basing their voting decision on their perceived economic situation in both cases. Research on European referendums shows that identity can override concerns over risk and loss (Jupille and Leblang 2007) but the extent to which this is true in domestic referendums concerning possible statehood is unknown. Certainly we have reason to believe that identity would be a more potent feature of decision-making than in currency referendums and we know it is an important determinant of voting preferences in elections.  Evidence from Quebec suggests that messages about economic risk were less compelling to voters than academic research might have predicted and one possible explanation for this is the strength of national identity among Québécois voters.  Understanding the relationship between identity and risk, and the types of voters for whom one is more important than the other, is key to understanding how citizens engage with and indeed determine constitutional change.

Furthermore, another key finding of behavioural economics is that people are susceptible to both priming and framing effects whereby their choices and values are influenced both by how options are framed to them and what they have been exposed to prior to making the choice. Daniel Kahneman coined the apt phrase “Nothing is as important as you think it is when you are thinking about it” to capture the extent to which people can overestimate features of a choice when making decisions.

The role of the media and the different interest groups in constantly priming and framing different messages to voters is thus very important. The Yes campaign’s job is to constantly prime and frame the potential gains of Independence, minimise the risks and losses and indeed remind people and make salient risks involved from a No vote. The No campaign, in turn, must frame the benefits of staying in the UK while also highlighting and making salient risks and losses involved in voting No. Our theory would suggest that the latter may be particularly influential for voters with strong economic motivations.

We are currently in the process of surveying representative samples of the Scottish electorate to assess the extent to which attitudes to risk and priming of risk will influence people’s votes. The extent to which any form of constitutional rescaling will occur is in part a function of citizen behaviour.  Ultimately it is citizens who, by their engagement with constitutional issues and the development of preferences, will determine which constitutional options are pursued.  We know very little, however, of how citizens behave during and after domestic constitutional referendums.  Debates concerning constitutional change, the referendum campaign and post-referendum period provide an opportunity to assess how citizens engage with constitutional issues, how they weigh the costs and benefits to themselves and to wider society of various constitutional options and, post-referendum, how they expect to navigate their multi-level political reality.  We will draw on best practice in behavioural economics and political behaviour to conduct a survey of citizens and address three research questions related to the existing grant projects. This is important for the Scottish debate and has wider ramifications for constitutional change debates throughout the world.

References:

Carsey, T. and Harden, J. (2010) ‘New Measures of Partisanship, Ideology and Policy Mood in the American States’, State Politics and Policy Quarterly, 10.

Jupille, Joseph, and David Leblang (2007) “Voting for Change: Calculation, Community and Euro Referendums”. International Organization 61, 4 (Fall): 763-782

Kahneman, Daniel, and Amos Tversky (1979) “Prospect Theory: An Analysis of Decision under Risk”, Econometrica, XLVII (1979), 263-291.

R.K. Wilson. The contribution of behavioral economics to political science. Annual Review of Political Science, 14(1):201, 2011.

 

Liam Delaney is Professor of Economics at Stirling and directs a research centre on behavioural science at Stirling Management School.  Ailsa Henderson is Professor of Political Science and Head of Politics and International Relations at the University of Edinburgh.  Both authors are investigators on the ESRC-funded Centre on Scottish Constitutional Change.

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