Counterfactuals are the story

26/07/2012 Comments Off on Counterfactuals are the story

The Dominion Post ran a story, picked up from the Telegraph, that showed the importance of c0unterfactuals. The story was about Mitt Romney’s son and his experience with the UK healthcare system, the NHS.

One day in Sheffield, however, a stomach complaint led him to a local doctor, who had terrible news: symptoms indicated that he might have colon cancer. Even worse, Mitt Romney later recalled, “the waiting time for a colonoscopy was six weeks – enough time to make an operable, curable cancer become an inoperable terminal condition”.

They had it checked out in a private clinic, and everything was fine.

What Romney concluded from this experience was that socialised medicine was worse that the private system in the US. This conclusion is driven specifically by the counterfactual that he chose for evaluating the experience. That choice then determined the outcome.

We can put this in a 2×2 grid:

What the Romneys had experienced in the US was great healthcare, because they could pay for it. When they tried to use the NHS, they found that it was only okay — they could get treatment, but it wasn’t timely enough for them. Since great > okay, then private > public.

They neglected to take into account that this assessment is conditional on being rich. They chose a counterfactual that applied to their own situation, and extrapolated it to everyone. However, everyone is not rich. For poor people, a public system at least provides some healthcare. For people in the middle (not shown), the solution is indeterminate, and likely to be driven by genetics and preferences. For that reason, a mixed system is likely to be best.

The Romneys could have chosen a different counterfactual. They could have said, this experience tells us what it is like not to be rich. Then, the logic is great > okay –> rich > poor. The type of healthcare system doesn’t come into it.

The example also shows another human tendency — making sense of the world by telling stories. It isn’t enough to relate the actual events. We also make sense of those events by putting them into larger contexts or wider narratives. Thus, a scary episode in England becomes proof that public healthcare doesn’t work. McCloskey tells us that economics is like story-telling (pdf),  while Cowen looks at it from the other direction and says that novels are like models (pdf).

Stories are implicitly or explicitly based on some counterfactual. In the counterfactual, another nail was used to secure the horseshoe and the kingdom was saved. In the counterfactual, Oedipus wasn’t filled with hubris and let his father have the right of way. And in the counterfactual, everybody is rich and has good private health insurance.

In economics, as in real life, we should remember that these are just fables.

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