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A Nobel Laureate's Primary

Author: Sebastian Mallaby, Paul A. Volcker Senior Fellow for International Economics
January 14, 2008
Washington Post

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The presidential primaries are terrific fun, but they are also absurd—far more absurd than even most critics recognize. It is not just that atypical, early states have disproportionate influence, or that outcomes can be swayed by floods of rain or money. The basic problem is one that’s common to nearly all electoral contests: Whenever there are three or more contenders, it makes no sense to ask voters to select a single candidate.

To see why this is so, consider last year’s Nobel Prize in economics, which went to three founders of a field known as mechanism design theory. Mechanism designers study the rules by which people with varying preferences can reconcile their interests. The first step is often to induce people to reveal preferences fully, so that a compromise that’s best for everyone can be arrived at.

A good example comes from radio spectrum auctions. Once upon a time, a company that wanted the right to use spectrum simply went to the government and asked to buy it; there was no mechanism to discover whether some other company might have used the same spectrum better. So the government invited all potential users to reveal their preferences by bidding in an auction. The firm with the smartest plan to use the airwaves would be able to bid the highest price. In this way, a scarce public resource would be allocated wisely.

So far, so familiar; but consider the next twist. In a standard auction, companies will bid strategically: They will name a price that won’t necessarily reflect what the spectrum is worth to them, because they may reckon that they can bag it with a lower bid. A company with a brilliant new cellphone technology that represents the best possible use of the spectrum may be able to pay $10 billion for it. But it might bid $8 billion and win, in which case the taxpayers would be short $2 billion. Or it might bid $8 billion and lose, in which case the radio spectrum would go to a rival that would use it less productively.

The mechanism designers solved this problem deftly. The highest bidder, they proposed, should win the auction, but the price he pays should be the one set by the runner-up. This ends the incentive to bid strategically. Each bidder will reveal what the spectrum is really worth to him, since he knows he won’t pay the price he is naming. The spectrum will end up in the most productive hands, and at a fair price for taxpayers.

Now apply this logic to primary elections. We have progressed beyond the no-auction phase, for which the analogy is monarchy. But we are stuck with the equivalent of flawed, high-bid auctions.

When voters express a preference for a single candidate, they reveal remarkably little. Unless one candidate gets more than half the votes, unlikely in a multi-candidate field, it’s impossible to know which candidate is the real preference of a majority of the voters. For example, Hillary Clinton won New Hampshire with 39 percent of the vote, but we can’t tell if she would have beaten Barack Obama in a two-person contest. We can’t even be sure she would have beaten John Edwards.

Just like badly designed auctions, the primaries encourage “strategic” behavior that conceals true preferences. Some Democratic voters who preferred Bill Richardson may have chosen not to reveal that, figuring that a vote for him would be wasted. Some independent voters may have preferred Obama yet voted instead in the Republican contest for John McCain, believing that Obama would win the Democratic contest without their assistance. If voters don’t reveal their true preferences, it’s hard to reconcile them successfully.

What elections ought to do is discover which candidate would beat each of the other candidates in head-to-head matchups. Eric Maskin, one of last year’s Nobel laureates for mechanism design, will suggest how a better system could do that in a lecture Thursday at Georgetown University. Maskin’s argument is that voters should list candidates in order of preference, so we wouldn’t have to guess whether Clinton would have beaten Obama in a two-person contest. If a majority of voters for Edwards, Richardson and the other also-rans put Clinton higher on their lists than Obama, she would win the contest under Maskin’s system. But if Obama ranked higher than Clinton on a majority of voters’ lists, then he would win. After all, most people would have preferred him.

Instead of this common-sensical system, we have a farce: On the basis of a three-point margin over Obama that tells us little about which of the two candidates voters actually preferred, Clinton has transformed her prospects. Maskin and other election theorists have patiently explained this absurdity for years. Surely the recognition of the Nobel Prize should now persuade the world to listen.

This article appears in full on CFR.org by permission of its original publisher. It was originally available here.

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