A Discussion of “Emotional Tagging and Belief Formation: The Long-Lasting Effects of Experiencing Communism”
Have you ever shared a dramatic experience with other people but each of you have a very different reaction? Each seems to draw their own conclusion, learn different lessons, store different memories.
That’s similar to what Laudenbach, et al. (2019) are looking into in their paper that examines “emotional tagging” and how it impacts the formation of people’s beliefs.
Specifically, the authors are using data from Germany to examine the hypothesis:
People who experience living under Communism as a positive experience will then have more negative beliefs about Capitalism and more positive beliefs about Communism, and vice versa. (p. 567)
Emotional tagging, or emotion in general, has not been a part of traditional economics. We start with the key assumption our agents are “rational.” I am sure you can think of some people that violate this (!) but wait, we economists use rational a very specific way.
Essentially we need the assumption so people keep their preferences ordered. (If I like red more than blue and blue more than green, rational people will like red more than green.) Without this, our math does not work.
Another way to understand rational: people will do an action as long as the additional benefit from doing it is not less than the additional cost. With this definition I can explain a lot of behavior, even some that seems irrational.
Like, breaking your diet. You’ve decided to lose weight so then why are you eating that cheesecake? Are you irrational, in an economic sense? Not necessarily, but you may need to be more honest with yourself!
There is the value you put on the future goal of losing weight, and there is the value of how much you are going to enjoy that cheesecake right now. The cost of eating the cheesecake then is maybe not losing the weight, or at least delaying it.
If you have a high discount rate, that is, you put a lot of value on today and a lot less on the future, you likely grab a fork. But some will restrain and stick to the diet. Both are rational; they just weigh the costs and benefits differently.
The authors here are not interested in time discounting but they are curious how people who have lived through major economic events seem to come to different conclusions that affect their actions in the present.
…the literature on experience effects shows…any personally experienced realizations appear to have long-lasting effects on beliefs, e.g., stock market crash or hyperinflation experienced in the past. (p. 567)
Essentially the authors are saying people put extra weight on their beliefs about the stock market or inflation because they have lived through an emotional event — and this effect is independent of education or being otherwise well-informed so cognitive error does not explain it.
Thus we need to examine the neurological foundations of memory formation, specifically the phenomenon of emotional tagging: emotions impact the encoding of an experience into memory so that the strength of the emotion matters, both positive and negative emotions.
This could then explain the variety of reactions seen when a group all have lived through the same experience.
- Some may react strongly if it affected them emotionally and some not much at all if it did not.
- Some experience it positively by looking at the bright side or drawing some helpful lessons while others may experience it negatively.
Emotional tagging then needs to be included in our rationality assumption so our agents can also include the impact of emotional events on their beliefs as they put weights to the costs and benefits.
That’s the argument — but then how to test the impact of emotional tagging?
Enter Germany — a country formerly split into two parts. West Germany adopted a Capitalist system and East Germany adopted a Communist system. Using survey data, they want to explore the people’s feelings towards Capitalism and Communism.
How are they going to capture emotional tagging, the strength of the experience?
Sports. And religion.
Why sports? To proxy positive emotional tagging. They assert East Germany promoted sports as a way to show that Communism was better than Capitalism, so they use 2 measures:
- Residence in a county that a gold Olympic winner came from
- Responses to survey question of how strongly they rate East Germany is better than West Germany in sports.
Why religion? To proxy negative emotional tagging. Given the Communists suppressed religion, they assert that people with high religiosity would have had a more negative experience so they use 2 measures:
- Residence in a county with strong Catholic religiosity
- Responses to survey question on how strongly they react to the Marx statement: religion is the opium of the people.
With the respondents sorted by how strong their emotional tagging is, they can then investigate the answers to some survey questions about Capitalism versus Communism for those who lived under Communism in East Germany to see if those who score high with positive emotional tagging prefer Communism. And likewise to see if those who score high with negative emotional tagging prefer Capitalism.
The survey is essentially statements where the respondent gets a choice of 4 answers to show how much they agree with Capitalism or Communism. Like for a statement, “The economy only works if it is organized as _________.”
- Definitely Capitalism
- Rather Capitalism
- Rather Communism
- Definitely Communism
Across the survey, those who had higher positive emotional tagging towards Communism were over two times less likely than the overall survey average to choose either pro-Capitalism answer. They were 3.6 times more likely to choose “Rather Communism” and 1.3 times more likely to choose “Definitely Communism.”
Similarly across the survey, those who had higher negative emotional tagging towards Communism were over 4 times more likely than the overall average to choose either pro-Capitalism answer. They were 7.2 times less likely to choose “Rather Communism” and 2.5 times less likely to choose “Definitely Capitalism.”
As the authors conclude,
The experience of living under Communism seems to be deeply anchored in people’s memories. Positive and negative emotional tags strongly affect the pro- or anti- Communist leaning. The emotional tags seem hard to reverse even many years later. (p.571).
I always like it when economists find way to enrich our analyses by reaching out to other social sciences to improve our modeling.
Emotional tagging may not be needed to estimate demand and supply curves, but it could be helpful in designing policies. If we wanted to encourage people to save more, for example, an investigation into the already existing emotional tagging about issues around saving, spending, debt, etc., could help design better ways to target policies to get the desired outcome.
Rationality as an assumption is generally close enough to reality to result in useful economic models, but it does leave our economic agents one dimensional. Including proxies for emotional tagging is a way to increase the diversity of the agents by allowing them to have different beliefs without making our math not work.
References:
Laudenbach, Christine, Ulrike Malmendier, and Alexandra Niessen-Ruenzi, 2019. “Emotional Tagging and Belief Formation: The Long-Lasting Effects of Experiencing Communism.” AEA Papers and Proceedings, 109:567–571
By Ellen Clardy, PhD on .
Exported from Medium on December 15, 2022.
