“Peak-End Rule”: Voter Perceptions are Skewed by Recency

I try very hard not to bore readers with too many of the dozens of articles that I, as a master’s student, should read each week. Nevertheless, I feel obliged to share some insights from a 2014 article by Andrew Healy and Gabriel Lenz (“Substituting the End for the Whole: Why Voters Respond Primarily to the Election- Year Economy”) because it is highly relevant, especially as we approach key election in 2024 in the UK and USA.  In this impressive analysis, informed in part by the work of Nobel Prize winning economist/psychologist Daniel Kahneman, the authors demonstrate convincingly that US voters consistently overweight economic performance in the fourth year of a presidential term when deciding on how to vote for an incumbent President.

What is especially interesting is that when voters are asked how they wish to assess a President they consistently claim that they would like to do so based upon the cumulative results of the full four year Presidential term. However, when it comes to voting, they historically and significantly overweight economic performance of the fourth year.  In part, this reflects faulty memories and the fact that going back and assessing the full term’s results requires intellectual work, which many voters seem unwilling to do. Instead, voters appear to unintentionally deploy a heuristic; how the economy feels as they are voting at the end of the term. The unfortunate result of this is that Presidents who may be competent economic managers over their full terms are less favoured than are clever politicians who figure out how to successfully manipulate the economy to suit the electoral calendar. This can mean that longer term national economic prospects are damaged in pursuit of a false economic uplift to suit an incumbent president (or Prime Minister, for that matter).

A good example is how voters perceived Presidents Carter and Clinton.  US GDP growth was stronger over Carter’s full term, but weak in year 4, and he was booted out of office (although there were other factors).  Cumulative GDP growth under Clinton was weaker, but his strong performance in the fourth year helped to give him a second term, the research suggests.

Apparently such a phenomena is observable in many other aspects of life. The article refers to examples of experiments undertaken in the area of gambling, vacations, TV advertisements, and colonoscopies, among other areas.  The authors specifically cited an example where individuals are asked to stick their hands in 14 degrees centigrade water for 15 seconds, and then do the same for 90 seconds.  Without letting them know they gradually raised the temperature in the final 15 seconds from 14 to 15 degrees. When they were asked afterwards which ordeal they would like to repeat, a disproportionate number wished to have the second experiment, even though they will have to endured 30 seconds of 14 degree water as opposed to 15 in the first example, and three times as much cold water overall. However, the milder temperature right at the end biases their decision-making process. Theorists like Kahneman and others call this the “Peak-End Rule”, where the feeling at the end of an experience dominates the individual’s overall impression.

This is all great stuff and highly amusing but is really a serious issue for our democracy. The results are so significant that it means that there is an extraordinary incentive for politicians to jeopardise the long term interests of the country in order to get the right economic result as an election approaches. I suspect this will be true for Joe Biden in 2024 and my hunch is that Rishi Sunak, the Prime Minister of  the United Kingdom, will have a hard time resisting the temptation to announce a raft of vote winning measures (my bet is for tax cuts) at the end of his term in 2024. Healy and Lenz suggest that the best way to address this is for governments to make sure that people are fully informed about the cumulative impact of their regimes and that this will ensure voters take the full term of their governments into account. This is an extraordinarily naive suggestion and I place the probability of this UK Government doing that at precisely 0%–same for the Democrats in the USA.

If the UK Labour opposition has any sense, and sometimes I doubt that they do, they will start to bang the drums now about the unaffordable electoral bribes which are surely coming down the pipe.  We have seen the first instalment of these in the budget just announced which lavished upon the top 1% of earners significant and generous pension benefits—this at a time when the bottom 80% are struggling to make ends meet.  I doubt the Tories will adhere to the “fiscal discipline” they normally shout about, and which is one of the justifications for paltry public sector wage growth.   

If oppositions do not point out this is an issue to voters, and do so early enough to prepare them for the bribery that will undoubtedly follow, they only have themselves to blame.  But it is not only they who lose, but all of us who suffer from the damaging long term consequences of the Peak-End Rule and the perverse incentives it creates for politicians.

London, UK—17 March 2023

I started my career in mainstream finance and shifted into impact investing before returning to my lifelong passion of politics in early 2021. This blog reflects that return and is my way of sharing the impressions of someone journeying from “proper jobs” in the investment world back into education to study politics after four decades. For those interested in why I started this blog click here, and to read my declaration of known biases, click here. I welcome any comments

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