What Does the Public Know about Economic Policy,

A long tradition in economic theory models economic policy deci-sions as solutions to optimization problems solved by rational and well-informed agents:1 a single policymaker minimizes a loss function subject to some constraints. Another body of literature models policy decisions as if they were made by well-informed voters in elections of some sort.2 As everyone knows, each of these approaches is allegorical in some respects, two of which are germane to this paper. First, apart from votes on school budgets and on some bond issues, economic (and other) policy decisions are rarely made by direct democracy. We instead utilize repre-sentative democracy, in which elected politicians decide on our behalf. Second, in many cases the agents making the decisions may be neither as well informed nor as rational as homo economicus. Robert Blendon and his coauthors, for example, find large gaps between measured economic performance and the public’s perception thereof.