There’s a joke about the economics of voting. Two economists see each other at the polls. They avoid looking at one another, but one finally blurts out, “I won’t tell if you don’t.”
Photo: Mdbeckwith. Source: Wikipedia
Economists sometimes talk about the irrationality of voting. Since one vote rarely makes a difference, they claim that rational actors won’t bother to vote. Of course, if everyone acted this way, democracy would break down. So we go to the polls, if only to see if our neighbors are there.
Today’s election in the UK is a nail-biter. Widely forecast to be 50-50 between the Conservatives and Labor, neither party is likely to win a majority. The rise of the Scottish Nationalists and the decline of the Tories and Liberal Democrats have roiled UK politics. But everything is up in the air. Predicting elections is tricky when there are more than two choices. People often vote strategically when their preferred party has no hope of winning. But narrow margins also increase turnout, which makes the outcome even less certain. Occasional voters can cause things to shift in unexpected directions.
The Scottish Nationalists are likely to become Britain’s third-largest party, after picking up nearly all of Labor’s seats in Scotland. But Labor’s prospects have improved elsewhere, so they will also gain. Just not enough to win the election.
Expected UK Electoral Map. Source: Electionforecast.co.uk
With all the uncertainty, UK markets are jittery. British stocks, bonds, and the Pound have all slipped in recent days. Volatile elections can lead to volatile markets. If they want a clear result, voting may be the most rational thing for British citizens to do.
Douglas R. Tengdin, CFA
Chief Investment Officer
Leave a comment if you have any questions—I read them all!