Brexit, Psychology and What Next to Do

No matter what our reaction to the outcome of the Brexit referendum, whether distressed or elated, we need to understand the psychological backdrop underlying the sentiment for Brexit.

In my view, a vote for Brexit was largely a cri de coeur from those perceiving themselves to be psychologically in the domain of losses. The most important research finding about people who perceive themselves to be in the domain of losses is that they are prone to take unwise risks, hoping at least to break even. And in the minds of many, Brexit is an unwise risk.

At the risk of oversimplification, those voting for leaving the European Union can be characterized as being of an older generation, having less income, or both.

Few people find it easy to accept being below average. For those who set their reference points at the average, having below average income will make them feel financially in the domain of losses.

Culturally, today's Britain is very different from what Britain was like before 1970, and especially what it was like before World War II when the British Empire was in existence. For those who nostalgically remember that Britain, today's Britain will make them feel culturally in the domain of losses.

I lived in Britain in the 1970s when it initiated the process of joining Europe. I remember that Britain. It was less cosmopolitan than it is now. My landlord at the time divided time into two periods: before the War and after the War. He was nostalgic for pre-War Britain and its Empire. And he was not alone, as I could see from the reaction to British television miniseries such as "Family at War," "Upstairs Downstairs," and "Jewel in the Crown."

Immigration appears to be at the top of the list of the factors influencing those voting for Leave. To be sure, immigration has changed British culture, and for that matter culture across all of Europe. Those who remember the old Britain nostalgically will feel a loss of control, especially at a cultural level. Indeed many will feel diminished. Bluntly, many will feel like losers. That is the emotional dimension of being in the domain of losses.

A vote for Leave for those feeling themselves to be losers without power, a vote for Leave was an exercise in regaining control and reclaiming power. Anyone who has viewed Amy Cuddy's famous Ted Talk, will see the power poses of those supporting Brexit after the announcement of the voting results. That is what a surge of testosterone looks like, both for men and for women.

The vote for Brexit occurred because too few recognized the pain felt by those who felt the pain of being in the domain of losses and losing control.

Until a week before the vote, I was in the group that failed to recognize the extent of the pain. Being a behavioral economist, my premise was that being part of Europe was Britain's default, and because of status quo bias and fear of the unknown, the country would vote to remain in Europe.

A week before the vote, I visited Britain to give a keynote address at a Behavioral Finance Working Group conference in London. Being back in Britain for the first time in several years, I saw first hand that Leave was not only a real possibility, more likely than Remain. For those in the Remain camp, and there were many, a week before the vote worry and anxiety were ever present, alongside the feeling that surely the vote would go against Brexit.

Psychologists distinguish between two concepts: the strength of the argument and the weight of the evidence. People make mistakes when their minds become swayed by the strength of the argument instead of the weight of the evidence. To my mind, the vote for Brexit is such a mistake.

Richard Dawkins tells us that we are mere vehicles that allow our genes to perpetuate. If he is right, older generations should have voted to Remain, given the strong preferences of their children and grandchildren for remaining part of Europe. Yet the Brexit referendum ripped families apart, as the older generation told the young: yes we understand that your lifespans our longer than ours, but we are still voting to Leave.

For the leave camp, the pain of feeling like losers from perceiving themselves to be in the domain of losses, both culturally and financially, and without control simply trumped genetic self-interest and trumped status quo bias.

European leaders are now feeling very hurt by the Brexit referendum result, and are urging Britain to sever ties as quickly as possible. They too are psychologically wounded, and now perceive themselves to be in the domain of losses, rejected by their British brethren: A loss of love.

Everyone could now do with a cooling period. Brexit can only happen by an Act of Parliament. Members of parliament need to understand that such an act will very likely lead to a breakup of the United Kingdom. Scotland will very likely vote to leave the UK, and Northern Ireland is almost as likely to do so. Then the English and Welsh will find truly themselves in the domain of losses, big losses.

Behavioral economists talk a lot about libertarian paternalism and choice architecture. Those who believe that paternalism calls for disregarding the outcome of the Brexit referendum, but want to be libertarians by respecting people's right to choose, face a difficult quandary. Should they recommend that the British parliament not pass an Act that would initiate the UK's withdrawal from the European Union? If they cannot be both libertarian and paternalistic, what should they do?

Perhaps there is a clever way to square the circle and be a libertarian paternalist in this regard. It is a tall order. If there is no way to do so, then the choice boils down to which is better, being a paternalist or being libertarian. Given the stakes, and make no mistake they are very high, my instincts are that paternalism should win out.

Those for Leave might argue that the UK will be better off through Brexit, and therefore it is easy to be a libertarian paternalist in this case. Perhaps, but I would counter with a utilitarian argument that weights votes by life expectancy. And in that case, the Remain side would win out.

Needless to say, this is a very complex issue, although a good first step would be for the Remain side to acknowledge the psychological pain experienced by the Leave side. A little healing might go a long way.

In any event, that is my two pence.