By David J. Cooper*, John Hamman**, and Roberto Weber***
Leaders are judged by what they say in times of crisis. The news has been filled with the pronouncements of elected officials from the president on down. Many have been filled with optimistic statements that the risk of Covid-19 was overstated, hardly more than the everyday flu, or that the economy can be reopened without risk. Drawing on techniques from game theory and experimental economics, we have been studying what happens when leaders use misleading statements to persuade followers who are uncertain what to believe. While leaders can gain from deceiving their followers in the short run, the resulting long run loss in credibility has devastating effects on their ability to lead.
To understand the nature of the problem, consider the decision facing an individual deciding whether to follow a stay-at-home order. If everyone follows the order, venturing out only when critical, they all gain, both individually and collectively, by lowering the infection rate and not overwhelming the health system. But if many ignore the order and venture out regularly, individuals may no longer lower their personal likelihood of infection sufficiently to merit staying home. The policy fails and all suffer collectively. Success comes from coordinated action. Political leaders often have superior information about what policies, such as maintaining a shut-down or reopening the economy, are likely to be collectively beneficial. They can persuade people to coordinate on a policy, but only if people believe the leader is making a sound recommendation based on their superior information. If the leader is no longer believed to be using their information for the collective good, their advice loses “informational” credibility and is no longer followed. Even if leaders are believed to be pursuing the best possible policy, their recommendation may lose “social credibility” if most people don’t expect others to listen. Social credibility is a self-fulfilling prophecy: people follow policies because they believe that other people will follow the policy.
What if a leader’s short-run interests diverge from those of their followers? For instance, in the current crisis there is a tension between the need to slow the spread of Covid-19 and the desire to avoid economic hardship. A leader who prioritizes economic factors, possibly reflecting electoral concerns, may push to re-open the economy even though their constituents would prefer otherwise if they knew the true state of affairs. This benefits the leader in the short run, but risks destroying their credibility. Future good recommendations may not be followed.
We use controlled laboratory experiments to study the role of credibility in effective leadership. Lab experiments allow us to strip away confounding factors that make data from naturally occurring environments problematic to interpret. To capture the essence of the above problems, we devised an “investment game” that re-creates the central tension found between leaders and the group of individuals they advise. Investors have to decide whether to invest effort into a project. Investing effort only pays if the project is inherently good and most potential investors buy into it. Leaders give advice to the investors about whether or not to invest. They are better informed than investors about whether an investment project is likely to be profitable, but in some cases they want investment when it does not benefit investors. Thus, leaders may maximize short-term personal gains by advocating for investment when it is not beneficial for investors. This risks losing credibility in the future, creating a situation in which followers do not subsequently follow the leader’s advice.
Game theoretic analysis indicates there are two possible outcomes for the investment game: leaders always give the advice that is best for them, and investors always follow it, or leaders always give the advice that is best for the investors and investors once again follow it. The critical insight in the latter case is what happens if the leader tries to cheat, claiming that investors should invest effort when it is not in their best interest; the leader loses social credibility and investors stop investing regardless of what advice they receive.
Theory cannot predict which of these outcomes is more likely, so we turn to laboratory experiments with human subjects playing the roles of leaders and investors. We find that the second scenario is largely consistent with observed behavior: Successful leaders use a cautious approach to giving advice. Those who take a more aggressive approach, calling for investment when it is not in the interest of the investors, quickly lose credibility and almost never manage to regain it once lost. Leaders who mislead their followers for a short run advantage destroy their ability to lead effectively. Both leaders and followers suffer in the long run.
What do these results tell us about the ongoing pandemic? Policy makers have always recognized the trade-off between human lives and other benefits. We go to war, knowing the human cost, if the benefits are sufficiently large. But when the costs and benefits are misrepresented, as happened with the Iraq War, credibility is irretrievably lost. Today, we must decide how to trade off further losses of life versus the cost of failing economies around the world. There are no good options. A crisis like this demands good leadership, and good leaders must be conscious of the importance of credibility. Politicians may be tempted to mislead constituents in support of policies that yield short-term political gains, but reckless leaders may irreparably damage their and other leaders’ future abilities to advocate for necessary policies. Successful leaders need to look beyond their short-term interests. Given the rush with which many political leaders currently embrace a reopening of economic activity, it is difficult to be optimistic.
* Florida State University and University of East Anglia
** Florida State University
*** University of Zurich
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