ABSTRACT
Misunderstanding economics is a natural state of affairs in view of the mismatch between innate cognitive tendencies and the analyses and concepts developed in economic science. Lay thinking suffers two crippling flaws: a “short range” and a “narrow scope,” shortcomings stemming from cognitive constraints on working memory and long-term memory. As a result, laypeople focus on direct causes, ignoring indirect, aggregate, and feedback effects. When the proper explanation eludes them, laypeople rely on a range of means to navigate abstruse economic topics, including intention attribution, reasoning by metaphor, reliance on ideologically prepackaged ideas, overextending personality traits, and good–bad dichotomies. People’s beliefs are important as they feed into the economic process, both through their behavior and via the political process, affecting public policy. We suggest a two-tier model for economic understanding. Some knowledge cannot be shared with the public, not because it is secret but because it is inaccessible. Other parts are potentially accessible, and every effort should be made to convey them. The present work did its best to characterize where the boundary between the two lies. We suggest several ways in which public policy should be responsive to these facts of life.
