ABSTRACT
We have argued that economic misconception derives from a mismatch between the complexities of economics and the constraints of human cognition. This chapter focuses on the latter. Lay explanations of economics suffer two crippling flaws: they have a short “range,” and a narrow scope. When trying to comprehend an economic issue, most people entertain only simple and direct causes, neglecting indirect effects and the links between them. “Narrow scope” owes to the nature of retrieval from long-term memory (LTM). People do not trawl LTM for pertinent information, but rely on the first things that come to mind. In addition, people do not trace through the causal chains leading to and from the issues at hand. This “short range” results from the exiguity of working memory (WM). The complexity of reasoning is bounded by the number of items and interrelationships kept active in WM. Its limited capacity means that complex ideas are hard to entertain, and long chains of reasoning difficult to follow. For this reason, people do not appreciate opportunity costs (failing to generate and evaluate alternatives) and ignore equilibria (failing to consider interdependence), among several additional flaws.
