The Broken Window - Fallacy, or Psychological Defense Mechanism?

As I quickly scanned through my backblog tonight, I encountered yet another cogent post protesting against the infamous Broken Window Fallacy. I had my own little mental conversation with someone on the other side, pictured saying "Suppose you're the governer of a state. A trustworthy eccentric offers to pay to move everyone out of the state, bomb a few cities, and move them back. Do you think this would make your state on net better off?"

While I can certainly picture some defensive hemming and hawing on the subject, I find it difficult to imagine many people's gut reaction being "Yes!". Which is quite strange, given the popularity of BWF arguments after calamities. Why the disconnect?

Then a resolution occured - perhaps BWF is *not* a misunderstanding about the nature of prosperity. Perhaps it is a psychological mechanism for optimism, for looking on the bright side of things. This would explain my observation that the BWF is intuitive only in hindsight, not in foresight. Once a disaster has occured, you might as well look on the bright side ("Hey, at least the construction industry is booming!"), but to wish for disaster, well that's obviously stupid. Such a mechanism for hindsight-only optimism might be evolutionarily advantageous in helping people not give up after such events.

If this theory is correct, there are some conclusions we can draw. First, it means the negative impact of the BWF is limited. If people's a priori decisions are made without the mechanism operating, it is not leading them to make bad decisions, hence not negatively impacting their lives. We could test this via a standard behavorial economics study, framing questions about identical situations in foresight and hindsight and seeing if they get different responses. Second, it suggests an alternate path of argument. Rather than repeating the same old rational economic arguments, we should simply try to help people see their own cognitive dissonance. They know that destruction is bad, they've just gotten tricked by a defense mechanism.

Caveat: I should note that the BWF is often used as an example of the much broader and more important principle that people pay attention to visible, concentrated costs and ignore invisible, dispersed ones, which leads them to economic errors. See ch. 1 of Economics In One Lesson for a great example. Despite positing this alternate mechanism for BWF in specific, I think the more general principle is a widespread and important fallacy.

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BWF in its most dangerous

BWF in its most dangerous form supports and disguises (makes important elements unseen) war. the average american believes wars which we "win" to be profitable. i agree with you that there's an attempt at optimism for many BWF-flavored proponents, but even when it's simply an observation after a disaster, it's not mere optimism, but rather distortion. often, the people writing about such things are simply doing what i call the "coffee is good for you; no, coffee is bad for you" switcheroo for attention.

i don't believe the article that's gotten so much recent scrutiny is truly BWF. at best, it's a bad example of it. that weakness may be what's fueling your reexamination of the fallacy, despite all the caterwauling around.

with regard to war though, we can't forget that BWF is 100% evil. i agree with you on the other stuff; it's not as big a deal as often portrayed, and i'd like to see the marginal examples skipped over. sometimes seems that people are happier that they caught anything resembling BWF than they are truly perturbed by its use.

"Suppose you’re the

"Suppose you’re the governer of a state. A trustworthy eccentric offers to pay to move everyone out of the state, bomb a few cities, and move them back. Do you think this would make your state on net better off?"

Been there, done that.

Linkfest Catallarchy has an

Catallarchy has an interesting post on the Broken Window Fallacy.

I think the propensity to

I think the propensity to accept the BWF in hindsight also signals a propensity to reject economnic analysis and efficiency arguments. I do think that people find the destruction distatesteful, but since they think "economic theory" says that it's a good thing (even though it most certainly doesn't, properly understood), they are more likely to reject real economic analysis of, say, why private schools are a good thing, or why subsidies are bad.

That's an interesting theory

That's an interesting theory as it applies to everyday joes. I think you're right that there is some a posteriori nature to it.

But for economic advisors and the like, isn't Keynesianism basically one big a priori BWF?

There's always a silver

There's always a silver lining...
It's faint, but it's there...

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