The problem with democracy

I just finished reading Bryan Caplan’s excellent book “The Myth of the Rational Voter”. It is an extremely valuable book for anybody who really wants to understand what drives democratic government.

Public choice theorists have long known about “rational ignorance” where people recognise their vote is almost worthless and so they don’t bother informing themselves about politics, political philosophy or public policy. The consequence is that most people can’t explain how the political system works, who their politicians are, the details of most policies, or the arguments underlying public policy debate.

Caplan’s addition to the literature is to say that people aren’t simply “rationally ignorant” but that they’re “rationally irrational”. Ignorance should lead people to making “random errors” where they are equally likely to make mistakes in either direction. But Caplan shows what political watchers already know… voters often make “systematic errors”, where many people are wrong in the same direction. The problem isn’t that people don’t know enough (ignorance), but that what they “know” simply isn’t right.

To explain this, Caplan suggests that people have “preferences over beliefs”, and once you think about this idea it becomes self-evident. There are certain ideas that people simply prefer to believe in. The most obvious one is religious, where people have a preference to believe the religion that they were brought up with: most Thais are Buddhist, most Indians are Hindus, most Serbians are Orthodox, most Colombians are Catholic, and most Iranians are Muslim. What an *amazing* coincidence! :)

Of course, if there is enough of a consequence, then many people can overcome their “preference over beliefs” and change their mind to achieve the better outcome. But if there is no consequence to your belief, then people will believe whatever makes them feel good.

Each vote has effectively no consequence so people stick with what makes them feel good. The problem with politics is that believing “whatever makes you feel good” can have a very negative consequence on society if the “feel good” policy is not the same as the “actually good” policy. Caplan outlines three areas where the average punter gets politics wrong: (1) an anti-market bias, where they don’t understand how markets work; (2) an anti-foreign bias, where they have overly-negative impressions about the impact of foreigners; (3) a make-work bias, where they have an overly-negative attitude towards new technology; and (4) a pessimistic bias, where they think things are worse than they really are.

Economics teachers encounter these biases every year and need to slowly (and painfully) try to explain to students that price controls don’t work, that comparative advantage means trade is good, that labour-saving technology makes us better off in the long run and that we are richer now than any time in history. The mistakes people make about these issues aren’t “random” in that half the class is “anti-foreign” and half is overly “pro-foreign”. The mistakes are systematically in one direction.

Understanding the bias

My complaint with Caplan’s book is that he doesn’t give sufficient attention to understanding why people have a certain “preference over beliefs”. Later in his book he seems to imply that we can fight to change these preferences, but I think that is naive. I suggest that evolutionary psychology explains what I see as the main political biases that people have:

1) conservative — people like to be accepted as “normal” and so will instinctively stick with the status quo and distrust big new schemes. The evolutionary reason is that the “trend-setter” often makes mistakes while the imitator can follow the good and avoid the bad.

2) like to be scared — everybody has a level of risk-aversion, but my theory is that we have evolved an instinct to be scared. The evolutionary reason is that the people who weren’t scared of tigers or starving ended up dead. The problem is that because “fear” is hardwired into our brains, as we solve previous problems we shift our fear onto new, less-serious, problems. Effectively, we are becoming more risk-averse.

3) need for control — because we have a sense of control over our own actions, we have developed an instinct to assume that if something is done, then somebody must be responsible for it. That is why it is comforting to belief in creation and it takes more of an imagination to consider an uncontrolled evolution of life. When something goes wrong, we want to find who is responsible. If nobody is, we often look for scapegoats. Consequently, people will assume that somebody should control the economy and it will take more of an imagination to consider the virtues of an uncontrolled market.

4) nice guy — while we have little incentive to research political philosophy, we do have a strong incentive to consider moral philosophy and the question of “how to live a good life”. Consequently, people have an instinct to judge politicians on what they know about, and support them on the basis of who gives voice to moral preferences. This gives rise to the common confusion between moral and political philosophy.

I think all of these instincts are understandable given the history of humanity, and are probably hard-wired into our minds. If somebody has enough of an interest in political philosophy and enough intellectual honesty they can overcome these biases… but due to “rational ignorance” most people will just stick with their biases.

The consequence is that we should expect politicians who play on your fears and then offer to fix them; to say that they won’t change too much or make risky decisions; and who confuse the moral with the political.

I think these four basic biases explain Caplan’s four specific biases (and more). I also think that the last bias captures another public choice theory — the Brennan & Lomasky theory of “expressive voting” — and fits it in nicely within the broader “rational irrationality” framework. Caplan played his theory as an alternative to Brennan & Lomasky, but I think they are part of the same explanation.

Where does this leave us? The logical consequence from the instinctive voter biases is that people will generally vote for a mix of the status quo and a little bit more statism. If voter preference is a major driver of politics, we should have a slow (due to conservative bias) ratcheting-up of the size of government (due to fear, control & nice guy bias), and the maintenance of bad (but popular) policies.

So is liberalism doomed?

Maybe, but not necessarily so. Democracy is one of the main institutions of our current system, but the other fundamental institution is jurisdictional competition, which forces politicians to also worry about the consequences of policy. Also, as Caplan says, politicians have “wiggle room” which they can use to follow an “intellectual zeitgeist” of sufficient merit. I think this explains the shift towards more free trade and market liberalisation in the 1980s (which were never popular).

Different sorts of democracy

Caplan also stresses that democracy can come in degrees. I also think it’s worth noting that democracy means different things to different people. The most crass definition is that 51% of people get to determine everything, but there are some other options, including (1) constitutional democracy; (2) limited franchise; and (3) decentralised democracy.

* When Alexis de Tocqueville famously praised American democracy, he was mostly praising the liberalism of the system where everybody had the freedom to pursue their own life story, and the civil society where people built strong voluntary communities. He was not praising “ballotocracy” where all decisions are made by majority rule, but a system of “constitutional democracy” where the government was strictly limited and so people were mostly free.

* A more controversial approach is to alter the franchise of who can vote. At one stage democracy only included land-owners, and later it only included men. Another option is for the franchise to only include people who are net taxpayers, or to exclude bureaucrats because of conflict of interest. And there is the option of having people pay for the privilege of voting through a poll tax. On the other side, the government could try to expand the franchise by forcing people to vote, even when they don’t want to… thought this seems likely to only make the problems of democracy worse.

* A final approach to adjusting democracy is to have the power of government limited to smaller jurisdictions. This achieves a number of improvements, such as (1) improving jurisdictional competition, which encourages more efficient governance; (2) increasing the value of people’s vote because there are fewer voters per jurisdiction; and (3) allowing people a more direct and personal relationship with their government.

Democracy is one of those buzz words that everybody uses. China and Iran call themselves democratic, and according to some definitions perhaps they are. But the distinctions between different sorts of democracy matters. Caplan has shown well that democracy can have a cost, and so it is wrong to automatically assume that we always need “more democracy”. That is a recipe for ever-larger and more populist government. What we need is a “smarter” and more effective democracy… similar to the one that was so admired by Tocqueville over 100 years ago.

(Cross-posted at my personal blog.)

30 thoughts on “The problem with democracy

  1. That is a recipe for ever-larger and more populist government. What we need is a “smarter” and more effective democracy… similar to the one that was so admired by Tocqueville over 100 years ago.

    But the real question to ask is why has that essentially broken down like a old jalopy. At a time when people have never been more educated they want more and more government, although the tea party movement is an interesting one.

    It really doesn’t look good.

    However my faith would be restored a little if Rudd is removed from office at the next election for the obvious reason that he’s publicly rejected liberalism. It’s not because I think the other said is ideal, but at least they buy into a fraction of liberalism.

  2. JC… I thought that “buy why” question was exactly what I was answering in this article.

    People have a set of instinctive political biases for slowly increasing size of government. And because each vote is effectively worthless, many people don’t bother to put their instinctive biases to the test. So unless we reform the democratic system we’ll probably keep seeing the growth of government.

  3. Yes but that’s the problem. We can’t reform the system as 50% don’t want to reform it seeing they’re living off the other 50%.

    The moment they catch a whiff that their position is endangered with reform they run a mile.

    Some of the most hardened free market right guys I know cannot conceive the state not involved in such basic things as health-care and schooling.

    My feeling is that we have to wait until the entire edifice of the welfare state comes tumbling down somewhere and only then do we have a chance to quickly make changes.

    Greece is a good thing 🙂

  4. My feeling is that we have to wait until the entire edifice of the welfare state comes tumbling down somewhere and only then do we have a chance to quickly make changes.

    Entire welfare states have fallen down before, and all that was happened was large-scale war and misery, followed only be an even larger and more obtrusive beauracracy from the ashes.

    It’s a pipe dream. If you want freedom in your lifetime the only option is to go live somewhere where the government either doesn’t know about you or doesn’t care.

  5. I think there’s another instinct that is particular prevalent amongst some more educated types.

    I think that’s the “perfection bias”. Intelligent people believe that there exists some solution out there for the various woes of the world and that you just need the right, intelligent person to find the solution and fix the problem. They believe that perfection can exist in politics, it just doesn’t at the moment.

    On education, for example, they may disagree with the current model but they often believe that if we could find the RIGHT education system then it would be fantastic for it to be public, universal and compulsory.

    These people aren’t always politically active, but often they are. Often they are science and engineering students who don’t give a shit about politics but believe in the power of science to do “cool stuff” and don’t even realise their “cool idea” is being forced on a lot of people.

    They are people that support stuff like NASA or a national broadband scheme or . I sympathise with them because I used to be one.

    Most would do well to study Spontaneous Order, or Emergence.

  6. “I think that’s the “perfection bias”. Intelligent people believe that there exists some solution out there for the various woes of the world and that you just need the right, intelligent person to find the solution and fix the problem.”

    Very well put. This is a tremendous problem with many (if not most) people’s political philosophy.

  7. I’m no philosophy expert so correct me if I’m totally wrong, but isn’t “perfection bias” what Plato was suffering from with his view that the best government would be a bunch of philosopher kings ruling by decree?

  8. Good point Shem. I like it. Though perhaps it is a “fix things bias”, where people have an instinct to fix any problem they see. That would make sense in an evolutionary psychology sense.

  9. “…most Thais are Buddhist… most Serbians are Orthodox… What an *amazing* coincidence!”

    Arguably, those two are matters of definition, i.e. someone who lives in Thailand but isn’t a Buddhist (and a monarchist) isn’t a Thai and someone who lives in Serbia but isn’t Orthodox isn’t a Serbian but merely lives there.

    “Economics teachers encounter these biases every year and need to slowly (and painfully) try to explain to students that price controls don’t work, that comparative advantage means trade is good, that labour-saving technology makes us better off in the long run…”.

    Actually, those are particular biasses of the economics profession, and are wrong themselves except in special cases:-

    – price controls do work, as tourniquets, in the short term, and are actually constructive when used as part of a larger policy that not only buys time but also uses it constructively;

    – comparative advantage does not mean that trade is invariably good, as there are a great many things that can interfere with that and make it harmful (e.g., using fiat currency to effect a wealth transfer at the same time and take over more than 100% of the increased revenue base, as in the Dutch culture system);

    – labour-saving technology does not necessarily (and, in fact, does not usually) make “us” better off in the long run, partly because yet other associated changes (like wealth transfers, so some other “they” gain and not “we”) can claw back more than 100% of the gain and partly because, like tomorrow, the long run never comes if you keep imposing further and further changes of this sort (you get a downward path by superposing successively larger and later J curves each of which heads up in the end).

  10. PML — you’re getting caught up on the 1% of exceptions. Economists don’t believe there are no exceptions, so that’s a non-argument. Unfortunately, the public bias is that protectionism and price controls generally works well and technology steals their jobs. That is wrong.

    Read Caplan’s book. He gives a wealth of evidence to show what we already know… the public has some strange (and wrong) views about the economy.

  11. The idea behind representative democracy is that citizens appoint people that can act as their proxy and then that proxy can go and consider the issues in detail, think through the political philosophy and decide on policy and legislation for us. In essence it allows people to specialise in the consideration of such things. If the chosen group really is representative of the general population and if they are given the time and information to consider the issues in detail then arguably we should expect to see some degree of rational decision making. And in fact I think it does have tendancies in the right direction. Members of parliament are generally more in favour of markets and less convinced of things like price fixing than the average punter. Our representatives do reflect in more detail than the average citizen.

    Where I think it tends to fall down is in two places.

    i) Representatives become delegates.

    Rather than being representatives politicians all to often become delegates. So rather than thinking the issues through and acting according to what they subsequently conclude ought to be done, instead they ponder too hard on what the voter wants to see them do. In short politics becomes about being popular to the many not merely representative of some. Re-election becomes a powerful incentive to do what looks good.

    Any of us that has tried to formulate a politically viable policy has done this. You think the ideal policy is XYZ. However then you start thinking about how people will react to XYZ and you start to tweak it here and tone it down there or spin it a different way and leave out the less popular components. The policy becomes compromised by the desire to sell the policy and find enough willing buyers.

    ii) Voting doesn’t work

    Voting does not create a representative group. Firstly because of system problems such as single seat electorates that stratify the sampling process and secondly because lots of people don’t vote for people that are just like them. Little old ladies on limited income with an interest in cycling don’t necessarily vote for little old ladies on limited income with an interest in cycling. Truck drivers with an interest in fishing don’t vote for truck drivers with an interest in fishing.

    I think the fundamental way to mitigate these problems is to do away with voting. Specifically I think we should do away with voting for the house that undertakes legislative review. Instead of election we should use sortition. Sortition, by using random selection, ensures a much more represenative group of people. It also ensures that there is much less popularity incentive. Sortition basically just means lining up all the nominations and choosing people at random (using a lottery for example). Such a group if large enough (100 will do) will be statistically very representative. With no re-election to worry about they will also have a much reduced incentive to concern themselves with doing what is popular.

    Representative democracy if done right can combat the rational ignorance implicit in direct democracy. However we need to ensure it is setup to succeed in this objective.

  12. “PML — you’re getting caught up on the 1% of exceptions. Economists don’t believe there are no exceptions, so that’s a non-argument”.

    No, I’m not “getting caught up on the 1% of exceptions” (though it’s actually rather more than that, and some of them are going on right now); I’m bringing out the fact that the “[e]conomics teachers [who] encounter these biases every year and need to slowly (and painfully) try to explain to students…” are themselves guilty of just the sort of prejudices you were describing, and express them by overgeneralising. That is, unlike genuinely knowledgeable economists who know about the exceptions and don’t “try to prove too much”, they genuinely do try to push the absolute assertions – and, they are wrong. They are no example of suppressio falsi et suggestio veri.

    Sure, the public do have some strange (and wrong) views about the economy – but so do many of those who try to “correct” them, and the public’s views are often not what they are taken for.

    Consider “Unfortunately, the public bias is that protectionism and price controls generally works well and technology steals their jobs. That is wrong.”

    The truth of the matter is, protectionism probably would have been better than what is currently in place, at least once you consider transitional costs (comparisons with true free trade don’t come into it), and this is probably what most of the public are thinking about when they say things like this. Yes, this is indeed the kind of exception real economists know about, e.g. when Paul Krugman quoted a classic piece of Paul Samuelson’s: ‘Let me quote from a classic paper by the late Paul Samuelson, who more or less created modern economics: “With employment less than full . . . all the debunked mercantilistic arguments” – that is, claims that nations that subsidise their exports effectively steal jobs from other countries – “turn out to be valid”‘; in my book, that doesn’t make it “debunked”, it’s a special but actually occurring case.

    Likewise, when the public are in favour of price controls they are probably each looking at them from their own individual perspectives, and at that level they do indeed deliver; it’s just that they can’t deliver all round, apart from the short term tourniquet effect I mentioned. So their particular (not general) ideas about price controls are probably correct. And technology does steal their jobs; the actual argument made against their view is not that it is incorrect (see Nassau Senior’s discussion of the corkscrew makers in his classic work on wages), but that they are in fact gainers because it delivers even more elsewhere (which is true) and that they will soon share in it (which is false, partly for reasons of wealth transfers and partly because the transitional effects are in fact too large and too enduring for this to come to pass on any meaningful time scale – I wrote this up years ago).

    So if you take the view that the public are not talking about their insights into the processes but about how they foresee things working out for them, you see that they (we) are not as dumb as all that and that those arguing against their position not only misunderstand it (leading to inadvertent straw men) but also suffer from “a little learning [which] is a dangerous thing”, unwittingly pushing untruths. In this they are unlike Krugman and Samuelson, who merely directed attention away from such actual behaviour, probably because they wanted to push policy towards the ideal but as yet unattained undistorted case.

  13. I agree that the voting selection process is the most fundamentally corrupting dynamic. Sortition might be a good way to frustrate gangs of plunderers/imposers as it would be much more difficult to coordinate their agenda and propaganda.

  14. Terje — rational ignorance is an old theory. Caplan is talking about the new (and I think more interesting) idea of rational irrationality. The idea is that people have natural inherent biases in politics. And given that we have no incentive to fix those biases, they are likely to have a significant impact on political outcomes.

    PML — read the book. I think you’re pushing on a string if you’re trying to defend the rationality of voters. I find it funny bordering on sad that you think voters have nuanced and wise insights into the complex interactions of trade theory and price controls. Most can’t name their own MP, explain how a tariff works or understand the theory of demand. A depressing number of people think that prices change because businessmen become relatively more mean or benevolent on different days. A scary number of people think that foreign aid is the biggest part of the government budget. These sort of errors are of course exactly what you’d expect once you understand Caplan’s theory. As I said… read the book.

    And I’m not going to get into an economic debate now. Suffice to say, I think that trade, markets and technology are generally good things. If you disagree then I can understand why you would have more sympathy with the populist position.

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  16. John,

    You said:-

    If voter preference is a major driver of politics, we should have a slow (due to conservative bias) ratcheting-up of the size of government (due to fear, control & nice guy bias), and the maintenance of bad (but popular) policies.

    I outlined how representative democracy needn’t be driven purely by voter preference and how we can mitigate the extent to which it is. Rational irrationality and rational ignorance on the part of the voter are a problem but we can improve democracy to mitigate this problem. It is well known that experts in a given policy area will think differently to the average voter. Representative democracy allows for individuals to specialise. As such enhancing representative democracy should be of assistance. Governments elected democractically have done some quite unpopular things that you and I agree with such as reducing the top tax rate, reducing tariffs, privatising government entities. I agree with you that we should have more juristictional competition but I don’t think it is the only mechanism at our disposal. And as concepts sortition and juristicional competition are not in any conflict. We can have both.

    I accept that there are few mechanisms for either type of reform.

  17. John Humphreys wrote “PML — read the book”.

    If I were challenging Caplan, I would have to do that; but I am actually applying what you report he asserts, to some of the people you describe as doing it themselves. That is, I am trying to show that those ecomomics etc. teachers are guilty of the very same thing themselves, and that the illustration you chose that uses them was poorly chosen.

    “I think you’re pushing on a string if you’re trying to defend the rationality of voters. I find it funny bordering on sad that you think voters have nuanced and wise insights into the complex interactions of trade theory and price controls.”

    Look again at what I wrote. I think no such thing, any more than I would have to think fish have such an understanding of hydrodynamics if I claimed that fish know how to swim. What counts is what we might call working knowledge, not deep insight and so on. The latter only performs better than the former once it is fully informed – and those who use it on a “little knowledge” basis do worse, sometimes far worse, and Caplan’s charges should be aimed at them too.

    No, I asserted that ordinary people generally make a better practical assessment of whether free trade or protectionism really would deliver better for them, and in which areas, than those simplistic advocates of free trade theories who do not take into account particular situations and special case behaviour (it is not those with genuine understanding that I am comparing the ordinary people with, just here).

    “Suffice [it] to say, I think that trade, markets and technology are generally good things. If you disagree then I can understand why you would have more sympathy with the populist position.”

    But who was talking about “generally good”? The issue has to do with the actual cases that come up. I strongly suspect that those have been carefully selected by knowledgeable people with rent seeking agendas, who know just which “reforms” to do first if they want to gain an advantage at other people’s expense; if the ordinary people don’t have that knowledge but do suspect the game is rigged on other grounds, that does not make their conclusions either wrong or irrational, merely not arrived at through economic insight.

  18. PML – can you give us a specific example of price controls that you think was of benefit and outline the factors that lead you to that conclusion.

  19. In general, I don’t think price controls help. However, I do know of two special situations where they are useful.

    The first is “corn rents”, and derivations of those. Rents on agricultural land that are set at a particular money value have a clause stipulating that a proportion, say a third, must be paid in grain at a set reference price; it is a form of indexing the rent, and was used by university colleges among others that had an actual need for a food supply. There, it is not prices on the market that are controlled, at least not directly, though there is a flow on effect. You may or may not consider this a price control system.

    The second is in special situations in which ordinary supplies have been temporarily interrupted but there are stocks around, for instance immediately after disasters or during wartime – it used to be common in sieges. Price rises simply cannot operate to increase production, but the prospect of price rises can operate to cause existing stocks to be held off the market (and to make less money available for things that are still in supply). In those circumstances, it can make sense to have price controls as a tourniquet, to buy time until the interruption can be ended; the catch is when they get in the way of resuming normal operations, or when they are ineffective and don’t stop stocks being held out of the market anyway. One way of dealing with it is a ration system, which puts the enforcement at the consumer end, and another is to allow post-dated subsidy payments to suppliers to be cashed in later, provided they freeze their current cash prices – but best of all is to have a strategic stockpile that can be sold down whenever market prices start to rise, with a credible threat to do so despite losses so nobody ever starts to act on anticipations of price rises. The problems are just like those of a tourniquet, that it only buys time and the buying time may involve longer term damage, so there had better be a good way of using the time bought.

  20. PML – price rises following a crisis may not increase production but they do moderate demand and ensure some prioritisation before consumption. For instance if following a major earthquake the price of bottled water rises then it may not stimulate extra supply in the short terms but it does send a vital signal to consumers. And in the medium term it does send a signal also to suppliers.

  21. That’s why price controls under those circumstances should allow for that, say with levels 30% to 50% more than before the emergency – it’s not about keeping prices down as such but about stopping the pricing mechanism clogging up limited supply. As I mentioned, price controls would be implemented best with releases from a strategic stockpile, but you can see that flying such things in would probably be loss making without an even larger mark up, but would send the signal that people shouldn’t anticipate increases so much that they withheld stock until that happened.

    Once there is adequacy of supply, cash payments are the best form of outside aid – but not until then. Such emergency measures involve paying people to do relief work like clearing debris, organising it through street or village associations who can identify the needy but unfit so locals getting those funds can look after them as charity (separate charitable organisation always misses those least able because they can’t ask for help either).

  22. So in an emergency situation you think the police should be chasing people that are charging too much for essentials. Seems like an odd priority to me. And I’m still struggling to see how it improves signaling.

  23. Now did I say that? There are far better ways of achieving the desired outcome (like posting rewards to informers to be paid from culprits’ fines, even if you can’t intervene in the market with strategic releases).

    The price blockage link comes not from high prices but from rapidly rising prices, which engourages holders of stocks not to sell even at high prices but to wait until prices stabilise at an even higher level. This is even without looking into the implications of funds left over for other things.

  24. …and how do prices stabilise without any sales…supply would thus shift back…assuming any degree of demand inelasticity…would be an incentive to re-enter the market.

    PML, this seems to be a very confusing theory.

  25. SRL, you’re stuck in the normal framework that does not apply in such emergencies. The prices would stabilise once the prices bid start to be accepted; until then, no sales would get made. And even then there would be no true supply at all, in the sense of continuing flow (ordinarily, from production), but only a drawing down of any stocks that happen to be around.

  26. SRL, what was not concise enough about what I put before, “…special situations in which ordinary supplies have been temporarily interrupted but there are stocks around…”?

    The next bit wasn’t very long either: “…for instance immediately after disasters or during wartime – it used to be common in sieges. Price rises simply cannot operate to increase production, but the prospect of [yet further material] price rises can operate to cause existing stocks to be held off the market (and to make less money available for things that are still in supply).”

    That, and what I clarified about the difficulty stemming from the prospect of future even larger price rises, not the actual high prices at the time, should help people understand how the problems work through. Just how brief would you need it to be, bearing in mind Einstein’s advice “make everything as simple as possible, but no simpler”? Perhaps I should clarify the difference between stocks and flows? But then, just how much grounding should I give? At some point, people should be assumed to have a knowledge of the area or to be willing to find out for themselves.

  27. “Price rises simply cannot operate to increase production, but the prospect of [yet further material] price rises can operate to cause existing stocks to be held off the market (and to make less money available for things that are still in supply).””

    How quickly does this get resolved?

  28. PML – I’m still waiting to find out for how long supply ceases as firms work out what bids to accept. I assume the time isn’t long enough to be a problem, but I still find your market mechanism puzzling. I have enough assumed knowledge to know how supply and demand work. Your model is problematic. One of which is that you can’t define an assumption.

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