The Irrational Election Process

Happy Start of Election Season!  Now, I know what you might be thinking, there have been countless debates, we’ve seen an endless amount of Michael Bloomberg ads, we’ve seen once popular candidates drop out, we’ve BEEN in Election Season.  To which I would say, counting all of this as the Election Season would be like counting October 15th as Christmas Season.  Iowa is like Black Friday.  Everything starts moving now.  All the pundits and projections and charts all start dropping into place now.  And, call me weird, I find the entire process fascinating.  The usual dread of Super Monday (still not a formal holiday) was smoothed by the fact that we will soon find out the leanings of 41 delegates to the next Democratic nominee.  Well, so was thought.  As I am sitting here writing this at 8:04 AM MST we have 0% reporting.  Literally 0 results.  We may have some idea about the performance, but most of that being speculation.  Nothing like starting our 2020 Election Season with chaos and controversy!

Let’s start by talking about the whole Iowa nomination process, the caucus.  I feel like if we had a word association game with Iowa your top 3 words would probably be corn, Hawkeye, then caucus.  I’m sure most people have heard the term but aren’t entirely sure how the caucuses work.  Well, it’s essentially a physical gathering that groups you with the candidate you want to vote for, and if your candidate doesn’t have enough people in it, you have to move on and find another group.  As if it wasn’t embarrassing enough being grouped with a candidate who most people in the room didn’t like enough, now you have to “come to the dark side” and find another candidate.  This goes on until you have one group that’s larger than all the rest of them, and that’s your winner.

To be polite, this surely is a quirky way to determine which candidate will receive our state’s delegates.  Quirky is okay when it comes to certain things, like if you had an unorthodox way to make a PB&J… (actually I changed my mind, don’t ever do this), but do we really want quirky when it comes to an election?  The best-case scenario when it comes to evaluating how caucuses are to work would be sharing information with similar-yet-differently minded individuals, sharing in kind, respectful debate leading to the end result of a shared candidate who most fits the ideals of everyone in that room.  But, despite most people feeling that they are independent, we are all easily influenced when we are dealt with group creation.  What could happen from the outset is giving up on your candidate prematurely because nobody really wants to be in the minority when it comes to thought-sharing.  So, if that is the case, you’re already swaying the results of the voting process before the true caucusing even begins.

All of this is evidenced by humans having a herding bias, where standing out isn’t what most of us want to do.  Even people who view themselves as leaders still have some follower tendencies.  While this still may be the case when it comes to the typical ballot-stuffing voting process, the anonymity of a ballot creates more safety from these herding influences.   When you physically have to attend these caucus meetings and have to put your face on your vote live, the possibility of biases skewing the intended results are probable.  So, now when the actual caucuses begin and you have to recruit the “losers” of the first or second round of caucuses, the influences of a very persuasive individual can flip entire voting blocks over to a candidate’s side. Again, all happening live.  There is very little time to rationalize your second or third best candidate at the caucuses, also creating voting mishaps.  All of this is to say, this system of physically attending caucuses doesn’t make much sense when we look at the other alternatives to electing leaders.

Sorry Iowans, who I’m sure may feel some pride in using this quirky election system since the 1800s.  There is a level of attachment we feel about things changing from how they have always been.  This is called endowment bias. It’s hard to properly evaluate these dated systems when we are actively entrenched in these systems, thinking that it really isn’t that bad or weird.  But when you ask me, that isn’t a good enough reason to seek improvement.  I’m sure people felt the same way about car safety when seat belts weren't a thing.  Or when you had to print out directions before you went somewhere or circle the good, clean gas stations in route to your annual Colorado road trip and X out the dirty, sketchy ones in a gigantic road almanac (shout-out to my Mom and Dad.)  These things, like GPS and seat belts weren’t complete overhauls to how we live life, just simple improvements to how we were already living.  Anything can be improved, just like caucuses.

When I first heard that Iowa was proposing “virtual caucuses,” I felt intrigued because we were taking fun, traditional ideas and executing them with the help of the 21st Century.  The convenience factor would be improved (you wouldn’t need to physically go to the caucus hall), you would have less human biases influencing your vote, and calculating the results would be free of human error. Unfortunately, the idea was voted down due to security concerns.  The DNC is being overly cautious with their election after the Russian hacking scare of 2016.  That fear of a recent event to some in Democratic wings is to blame on their defeat in 2016, led to a decision that could have been a significant improvement to the voting process in this crucial first state in our Election Season.  Instead we perform caucuses the same way, but thanks to a coding issue with the app used to share the results, the results of the election and to some the election’s integrity, are in question.  Now, to compensate for the fear of this failure happening again next election cycle, we will probably have even less technology in Iowa moving forward.  All of this is a key example of recency bias, where we are more inclined to look at these negative technological failures with our elections instead of looking at the positives that come with technological advances.

This chaos and craziness stemming from Iowa can obviously have huge ramifications with the overall primary results, which is also an example of representativeness bias.  Going back to the herding bias and the fear of missing out, you see early states having a lot of influence on the remaining states.  Below is FiveThirtyEight’s forecast on how each of the election days will affect the overall election. They’re showing that Iowa will have the second largest impact on the election, only behind Super Tuesday, so I understand why there would be some level of concern about making sure we get this state correctly.  Especially when it comes to picking the competitor to an incumbent president who has gotten a lot of opinions on each side about his presidential performance.

When days like Monday hold a direct effect on who will be our president for the next 4 years, they should certainly hold proper care.  However, regardless of who the candidates are or who the incumbent is, there is a level of fear involved based on the potential changes to our elected leader and your views on that leader (this is technically familiarity bias where we fear changes to the status quo, which by the way is another bias where you don't like to make changes).

Source: FiveThirtyEight

My advice would simply be to not let your thoughts on whoever the President is create too much fear.  When it comes to the market, both President Obama and President Trump created a level of “doomsday” as they were inaugurated by people who didn’t want them as president.  For people anticipating that Doomsday, they were surely disappointed to see both of their first years as president being 2 of the best market years we’ve seen in our lifetimes.  Policies and temperament can certainly sway how the country is run, but our country will still move forward.  With that being said, take a deep breath and enjoy one of the great gifts to living in America, a free and peaceful election of our country’s leader.

Cody Hybiak is a Client Portfolio Manager with SEM. He assists SEM's advisors in reviewing their investment allocations as well as importing and monitoring the data that generates the signals inside SEM's trading systems. Cody received his Bachelor of Science degree in Business Administration (Accounting emphasis) from the University of Arizona with an emphasis in Accounting. He joined SEM in March 2017.

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About Cody Hybiak
Tucson, AZ
Cody joined SEM in March 2017 as a Client Portfolio Manager. He is a graduate of University of Arizona. Cody also helps with the teen program at the Bridge Christian Church in Tucson, AZ.