A Behavioral Economics Approach on International Trade. Why Do People Oppose Trade?

Abstract

Orthodox economics has complex models to explain international commerce and its benefits. However, commonly, people behave in manners that do not conform with the theory: international trade openness usually finds great opposition and little support. With the rational agent framework these behaviors don't make sense, but they can be explained with behavioral economics, particularly with the nudges and biases approach. The objective of this paper is to provide insights into the lack of support and extreme public resistance to international trade. This paper is structured as an empirically grounded essay, using behavioral economics to explain the divergence between the expected behavior from theory and the direct opposition of many toward trade openness. Identifying biases related to the valuation of “benefits and losses” in wellbeing and accessibility issues regarding economic models. The earnings and losses of trade are asymmetrically distributed, atomizing the first and concentrating the former. Jointly with the Prospect Theory, this could explain the extreme adverse reactions and the lack of support. On the other hand, many of the expected benefits are derived from complex theoretical models, while the stories of the harmed are self-telling, leading to accessibility issues that culminate in substitution heuristics and counterfactual reasoning.