Sentences to ponder

by on July 28, 2012 at 3:55 am in Economics, Political Science | Permalink

The findings reveal that 20.7% of the studied articles in behavioral economics propose paternalist policy action and that 95.5% of these do not contain any analysis of the cognitive ability of policymakers.

No, that is not Arnold Kling, it is from Niclas Berggren.  Hat tip goes to Daniel Klein.

Doc Merlin July 28, 2012 at 4:49 am

Behavioral economists have a cognitive bias that leads them to treat policymakers as cognitively unbiased?

dan1111 July 28, 2012 at 5:56 am

I think more likely biases are:

1) A bias in favor of action that stems from wanting one’s own research to be significant. One is “making a difference” if one can recommend action as a result of one’s findings.

2) A bias toward the kind of findings that will attract funding. Policymakers hold the purse strings, and they want to fund research that says they can solve the world’s problems rather than research that calls into question their cognitive ability.

dan1111 July 28, 2012 at 5:57 am

p.s. You were obviously joking, ha ha. Perhaps my serious response calls into question my cognitive ability (at least I wasn’t paternalistic).

Eric H July 29, 2012 at 9:04 am

Why, there oughtta be a law against this kind of thing!

Vivian Darkbloom July 28, 2012 at 6:45 am

Whenever the discussion about paternalism comes up, I’m reminded of that old TV show from the 1950’s called “Father Knows Best”. As I recall, no one on that show ever questioned the Dad’s (Robert Young’s) cognitive ability. Bill Gray, who played one of the children in that program, said, in a 1983 interview, that being on the show was one of his biggest embarassments. He concluded: “If I could say anything to make up for all the years I lent myself to (that), it would be, ‘You Know Best.'”[

Bill July 28, 2012 at 8:08 am

Follow the links and you will find a question that is not asked of the questioner:

The thesis of the paper is that “policy makers” employing behavioural approaches should also be subject to “irrational biases”.

But, so should a Libertarian, Republican, or Democratic “policy maker” by that definition.

Sort of reminds me of the guy who invents the anti-matter and tries to put it in a bottle. In this case, by the paper’s definition, ALL policy makers, even those employing behavioural AND non-behavioural approaches, are subject to irrational biases, which, if the case, means everyone is operating on the same level playing field, which means I choose the behaviouralist because at that approach comports to reality.

Felipe July 28, 2012 at 1:22 pm

I guess the thesis of the paper is that economists employing behavioral approachs advise paternalist policies based on the findings that market economic agents have cognitive bias, but they don’t look if politics, who are going to design and implement the policies, have their own cognitive biases.

Bill July 28, 2012 at 2:15 pm

Felipe,

Insert “economists employing conservative approaches” in lieu of “economists employing behavioural approaches” and replace “paternalistic” policies with “conservative” policies,

Then,

See how your sentence reads.

Ask yourself this question: Is it paternalistic for a traffic engineer to put a stop sign at a busy intersection if, as a result, there are fewer deaths or injuries. Don’t get hung up on emotive words like paternalism.

Felipe July 28, 2012 at 2:37 pm

Bill,

The question is:
– Berggren don’t discriminate between “Libertarian, Republican, or Democratic “policy makers””: policymakers – anywhere on the political spectrum – may be subject to cognitive bias.
– So, your observation is right: any politician may be subject to “irrational biases”. But, since Berggren don’t objects it, your observation is pointless.

Another point is:
– The policy makers don’t employ behavioral approaches. They legislate and execute policies. Economists employ behavioral approaches.

Bill July 28, 2012 at 2:42 pm

Felipe,

So, you agree with me on the first point,

And, on the second, what you say is that politicians are neither behaviouralists, conservatives, libertarians…whatever…they are just politicians, and only economists employ behavioural approaches. Hmmm.

Felipe July 28, 2012 at 3:08 pm

Bill,

On the second, I think you don’t understand what behavioral approach means…

_____________________________________
Felipe,

So, you agree with me on the first point,

And, on the second, what you say is that politicians are neither behaviouralists, conservatives, libertarians…whatever…they are just politicians, and only economists employ behavioural approaches. Hmmm.

Bill July 28, 2012 at 3:26 pm

Felipe,

I read your first comment as an acknowledgment that all policy makers, under the authors assumption, had the same bias, and that this being so, my choice was the one who had the behaviouralist background, given that behavioural economists is grounded in empirical reality. Evidently you now disagree with the observation that ALL policy makers have cognitive biases.

We disagree, altlhough I read your response as agreement, but, apparently you do not.

Second, you didn’t respond to my second point other than to restate it.

Felipe July 28, 2012 at 9:21 pm

Bill,

I don’t know if all policy makers have the same bias, because the behavioral economists, do not don’t checked them. That’s the point of the paper: the economists tested the “market people”, but are not concearned with the rationality of the politicians.

About your second point:

I’m not saying “politicians are neither behaviouralists, conservatives, libertarians…whatever…”

I’m saying that Berggren don’t separate them. He just states that behavioral economists don’t look for (or don’t mind) the politicians behavior.

The point is: if I say that people are not fully rational because they have cognitive bias, how could I propose actions? First, I’m probably subjected to cognitive bias too. Second, politicians who will choose to follow my prescriptions or choose to implement other political actions, are subjected to cognitive bias also.

So, the least thing to do is try to test if the politicians are subjected to cognitive bias. Or, if I can’t test them, write in the paper that it should be done…

Bill July 29, 2012 at 12:09 pm

Filepe,

Let’s create a model and look at the result. The model is as follows: A, a behavioural economist, proposes policy A’. Agents, legislators, take the proposal (call it an vector with a direction and angle, and they shorten it, and change the direction of the vector slightly. I am not saying that legislators do not introduce friction into the system or deflect the vector–they do–but you have to look at where they end up.

As for saying that we do not study both the friction and the deflection caused by the Agent, I would say we do.

It’s called POLITICAL SCIENCE.

Felipe July 29, 2012 at 5:20 pm

And your point is???

You started making a wrong statement about the thesis of the paper. And you keep arguing things that aren’t in the paper!

Bill July 29, 2012 at 7:53 pm

Challenge to Filepe:

You state that I made a wrong statement of the thesis of the paper.

Here is what I said: “The thesis of the paper is that “policy makers” employing behavioural approaches should also be subject to “irrational biases”.”

Dispute it.

Felipe July 30, 2012 at 1:47 pm

Ok Bill,

In p. 2-3, Berggren states the two main purposes of the paper:

“The study has two main purposes. The first is to document the prevalence of policy recommendations of a paternalist kind in leading research in behavioral economics. To what extent do researchers draw normative conclusions from the insight that economic actors often behave irrationally?”

Nothing about what policy makers do, just about what behavioral economists do.

Then, the second purpose (p.3):

“The second is to investigate to what extent those behavioral economists that do offer policy recommendations analyze policymakers in the same way as they analyze economic decision-makers.”

Nothing about the behavior of policy makers here… just about the behavior of the economists again… so:

The thesis of the paper is that the behavioral economists advise paternalist policies based on the cognitive biases of the market agents, but they don’t test those who will implement these policies for the same cognitive bias.

It’s the old public choice question: are the “homo economicus” and the “homo politicus” two different persons?

But, let see how he continues:

“Are the former also seen as suffering from cognitive imperfections and irrationality, or is it simply assumed that they are without such problems? To the extent that researchers do not apply assumptions about cognitive limitations and biases to policymakers, or motivate why such assumptions are superfluous, it could be argued that policy recommendations are based on an incomplete analysis. If policymakers are irrational just like others, the chances of success for the paternalist project can be put into question.”

Ok, here he wonders about the rationality of the politicians to make his second purpose clear. So, we could say one thesis of the paper is:

“policy makers” could be subject to “irrational biases”

But not:

“policy makers” employing behavioural approaches should also be subject to “irrational biases”, as you wrote.

Why not your version?

1-As I said before, policy makers don’t employ behavioural approaches. Behavioral economists employ behavioural approaches. The policy makers can employ the behavioral economists proposals, but they do not employ the behavioral “toolkit”.

2-Based on (1), we could change your statement, making it just hal wrong:

“policy makers” employing behavioural economists policy propositions should also be subject to “irrational biases”

But Berggren’s concearn is not restricted to a subset of the policy makers. The one’s that could be subjected to “cognitive imperfections and irrationality” are the policy makers: any policy maker.

anon July 28, 2012 at 8:19 am

Seems like the “Nudge Unit” in the UK (led by David Halpern) will provide some interesting case studies of behavioral policy proposals going through the political process.

I am struck by the fraction of papers with paternalistic policy proposals. I don’t understand why so much of behavioral economics has gone the way of nudges as opposed to education (or improved information). Nudges like automatic enrollment in company pensions do seem to overcome inertia and procrastination, but they don’t seem to address decision making over the long run. Nudging someone to do the right thing is different from helping them understand why it’s the right thing to do (and surprise, sometimes it’s not).

The emphasis of behavioral economics on cognitive mistakes has been a valuable addition to economics. I believe this is important work, but I am skeptical that it’s ready for broad policy proposals.

Tom Ledford July 28, 2012 at 9:32 am

Actually, 49.2% of all Internet statistics are made up on the spot.

libert July 28, 2012 at 9:33 am

One could read this in a different manner: that the logical result of new findings in behavioral economics is that paternalism can be good.

As for the latter point, behavioral economics studies economics, does it not? Leave studies of politicians to the political scientists.

vanderleun July 28, 2012 at 9:34 am

And the other 50.8% were made up earlier.

vanderleun July 28, 2012 at 9:35 am

Libert, quit stepping on the punch line.

mw July 28, 2012 at 10:20 am

i assume the other 80% recommend individualist/choice policies that don’t include any analysis of the cognitive abilities of the individuals

Bill July 28, 2012 at 11:41 am

I am interested in the emotive reaction to the word “paternalism”.

Think about your reaction to the word ‘paternalism’ and compare that to your reaction to the phrase ‘benign neglect’. Both at their core concern the word ‘care’, since, afterall, the end result concerns your concern of care for others, yourself included.

Yet, you react to the word ‘paternalism’ one way, and not ‘benign neglect’ the other.

Ask yourself: what if the world were stacked one way–or human nature were stacked one way–and you could, and others with you would agree, to make a change that would make you and everyone else better off.

What is your reaction now to the word ‘paternalism’ versus the phrase ‘benign neglect.’?

Do you care?

derek July 28, 2012 at 4:23 pm

It’s called a bee in your bonnet.

You miss the point. I’ll illustrate by two anecdotes. The policy in question is carbon taxes, encouraged by many economists as a way to decrease carbon emissions. British Columbia is one of the few jurisdictions in North America to have implemented them. So we start with the economists saying that putting a price on carbon will change behavior and encourage investment into technologies that produce less. No argument so far. Then it goes to the politicians who write the legislation and the various branches of government to implement policy.

The tax was introduced in 2008 at the same time that fuel prices hit their peak of that year. It was noticeable how much less traffic there was, this in May June 2008. People were driving less due to the high cost. Part of the legislative scheme was to give rebates to everyone so that the tax was neutral. Just before the July long weekend everyone got a check for $100 (by memory), on thursday or friday it arrived in people’s mail. The service stations had record sales of gas that weekend, as many cashed the check and filled their tanks. Not quite what was intended I suspect. Not all is bad, fuel consumption is down in the province. I know myself and others who were seriously re thinking how we did business to minimize fuel costs at that time due to the high prices, and I suspect the easing of that pressure by government program implementation may have put off decisions or lessened the impetus. In any case it could have been done better with more effect.

The legislation also imposed a per ton charge to government departments. School districts would have their carbon emission cost deducted from their grants (or that is what it ended up being). Money was made available for capital improvements so that districts could improve their buildings. At the same time the Federal gov’t was giving money for projects with similar goals. Three such projects occurred in my area. One was a new school, LEED certified, geothermal. The problem is that it has the highest per sq ft cost for heating of any school in the district. A second project was to install a geothermal system for radiant heating. It was installed more than a year ago and has run the total of 10 hours. The third, this one Federal money, was use rejected heat from an ice rink plant to heat pool water. Completed a year ago and it has maybe 3 hours running.

Not everything has been such an abject failure. There were many things done where improvements resulted. What an economist says implemented by politicians is not the same. Strained through the political interests, the incentive for re-election and choosing who to impose costs on will change the initial idea into many times a dog’s breakfast. No matter who is in power.

So if an economist with a good idea that would be good policy doesn’t take into account the real losses in the political process, at best the gains from the policy will be less than expected and at worst it could have effects opposite of what was intended.

Bill July 28, 2012 at 4:54 pm

So.

And, the point is?

Do you think that “an economist with a good idea that would be good policy doesn’t take into account the real losses in the political process” means that INACTION is better or worse. All you’ve done, if you want to analogize this to physics, is introduce “friction” into the system by including a political process–that does not mean that the direction or the path you have chosen is worse than an alternative of inaction.

No one says that you should not be vigilent in the political process. In fact, to the contrary, business well recognizes behavioural economics, so they are the FIRST to recognize the importance of default options, that consumers do not read fine print, and that an arbitration clause in the fine print will be overlooked, and that they need to expand the scope of arbitrability under federal or state law.

In short, the “friction” is a separate question from the policy. Moreover, the “policy” can be inaction or action–sometimes doing nothing is a policy, isn’t it. And, if so, often the friction–that is, the political force or friction that you so decry–favors inaction. Just ask the Chamber of Commerce.

derek July 28, 2012 at 9:43 pm

The friction is where the policy actually has effects. If that is not important, I don’t know what to say except that people who believe is isn’t important should be ignored. One would think that in the exercise of power someone responsible would start by trying to do no harm. Bad policy implementations do real harm.

Another example. Quebec has, or had, a very tightly regulated construction industry. The policy goals were multiple; local employment, unionized workforce, vigorous health and safety, construction quality, etc. The end result was that about 50% of the construction projects in the province were done underground. The rules were insane, for many it was impossible to follow the contradictory and conflicting rules, so none were followed. That amount of activity was done outside the municipal zoning, any taxing was forgone, safety regulations ignored. The government was losing substantial amounts of revenue. The solution? Do nothing, or rather, deregulate. Allow this activity to happen legally by removing rules, regulations and policies.

The friction was so costly that the policy was untenable. Interestingly the construction industry in Quebec is rife with corruption and organized crime. Almost like the policy made it like that. I don’t think it was intended.

Another interesting comparison. Quebec has the loosest most liberal liquor laws in the country, close to what most US states have. British Columbia has had, although it is changing, the most rigorous, tightly controlled liquor laws. Any opinion which province has the highest rates of alcohol abuse? Let me put it simply. Doing nothing, having less policy produced better results. Odd isn’t it. It is almost as if the policy goals were opposite to the results. One would think that this would be important.

So yes, in many cases the best response is to do nothing at all. I repeat, those who offer policy with no thought given to the actual friction of implementation are best ignored as fools and/or dangerous.

That is not to say that government should not pursue policy goals. Carefully, limited, with built in feedback mechanisms for correction.

Bill July 29, 2012 at 10:09 am

Derek,

You made a strawman argument.

I said: “No one says that you should not be vigilent in the political process. In fact, to the contrary,….” You then acted as if I ignored friction and the need for vigilence by saying: “The friction is where the policy actually has effects. If that is not important, I don’t know what to say except that people who believe is isn’t important should be ignored.”

Poof.

J. Daniel Wright July 28, 2012 at 12:49 pm

Is anyone surprised by the finding that a small group of smart, liberal academics believes in “we know better than you”-type policies? I’m honestly surprised it’s just 20%.

Bill July 28, 2012 at 12:53 pm

Is there any reason you should limit that to liberal academics? What about conservative or libertarian policy types? Don’t they have “we know better than you” policy positions.

Ask yourself this question about your observation: is it an observation or just a label than can be applied to any group?

awp July 28, 2012 at 4:18 pm

sure,. conservatives do.

The typical libertarian policy position is “you know better than us.”

GiT July 28, 2012 at 4:54 pm

More like, “I know better than you that the market knows better than us”.

Doc Merlin July 30, 2012 at 8:05 am

Not at all. I believe you know how to better run your own life than I do.

J. Daniel Wright July 28, 2012 at 1:34 pm

Yes, Bill, it is more constrained to the liberal variety. Think of Paul Krugman as the leading example. Smart, liberal, and very paternalistic. Libertarians and “we know better than you” policies are an oxymoron. They’re opposites. Libertarians believe everyone is capable of making their own utility-maximizing decisions and their policy proscriptions derive from that belief. So no I don’t think the label liberal could be applied to any group in this case.

Bill July 28, 2012 at 2:47 pm

So, with everyone, as you say, making THEIR own utility maximizing decision….that necessarily means that if everyone ELSE makes their own utility maximizing decision, then you will be able to impliment YOUR utility maximizing decision…wanna bet.

Go to a busy intersection. Imagine no stop signs. Imagine at night that you are making YOUR utility maximizing decision and that someone ELSE is making theirs–and the utility function of each of your includes texting and getting to the destination at the highest speed.

Good luck.

Bill July 28, 2012 at 2:53 pm

J,

Ask yourself how your model–each individually maximizing–works in the presence of externalities.

Doug July 28, 2012 at 5:28 pm

Actually, at a busy intersection with no stop signs, my utilitiy maximizing decision would be to slow down to a speed safe enough to avoid a collision, and pass through the intersection when it is my turn in order to avoid an unpleasant confrontation with other drivers. If everyone followed their own utilitiy maximizing decisions in that context I think it would work out rather well. Perhaps even better than with stop signs, as you wouldn’t need to come to a complete stop when there is no opposing traffic.

Bill July 28, 2012 at 8:13 pm

If I know you will stop, I will not, assuming you will stop.

Now, I just have to avoid the person who follows the same rule that I do. Wouldn’t it be optimal to make sure EVERYONE follows your rule of slowing down? And, what is “safe enough”?

I suppose your slogan is:

FREE THE INTERSECTION FROM THE MAN.

Doc Merlin July 30, 2012 at 8:07 am

Actually there have been a lot of studies about this behavior and they found, very similar things to what Doug said. In response several very busy intersections in the UK had their traffic lights removed. The traffic became much more manageable at the intersections. Now I am not saying this always works, but there is definitely a lot of literature in civil engineering journals about this.

derek July 28, 2012 at 9:47 pm

My maximizing decision in an intersection with no control is to stop to make sure I survive. When I taught my daughter to drive I had to insist to the point of annoyance that your right of way, or you having the legal right to do anything was meaningless. It is called defensive driving, never trust that the other guy will do the right thing.

Bill July 29, 2012 at 10:15 am

Re defensive driving without rules ie, “never trust that the other guy will do the right thing.”

The problem is that without rules, there IS NO RIGHT THING. There are no norms, and that’s why you have defensive driving BECAUSE there are rules.

Consider how you would defensively drive DIFFERENTLY in a different country where there are DIFFERENT traffic rules. Say England. Is defensive driving DIFFERENT for you there than in the United States ; Answer: Yes. Why: You don’t know the norms (rules and law). If you did know the norms (rules and law) your defensive driving would be different.

So, under a system of no rules, defensive driving is different than in a system of rules, or different rules in different jurisdictions.

Arte Suave July 28, 2012 at 1:41 pm

Does changing a policy from opt in to opt out count as “paternalism”

Bill July 28, 2012 at 2:20 pm

+1

Does placing a stop sign at a very busy intersection, thereby reducing death and injury, constitute paternalism.

Would the “state of nature” without the stop sign–resulting in, say 6 deaths a year at the intersection–been better or worse than a stop sign that results in no deaths a year at the intersection.

Why is the initial state of nature perfect, and steps to alter outcomes “paternalistic”?

Doug July 28, 2012 at 5:34 pm

I think your assumption that stop signs prevent 6 deaths a year is probably not correct, but even if it were, stops signs are not really example of what most would call “paternalistic” policies.

The policies that are usually referred to as paternalistic are criminalization of recreational drugs or prostitution, NYC’s large soda bans, the ban on fresh dairy, and other laws whose primary intention is to protect an individual from the consequences of his own actions and choices, rather than to protect individuals from the externalities of other peoples’ actions and choices.

Bill July 28, 2012 at 8:19 pm

Is this really an issue of definition of paternalism to define it as a narrow set of issues as you did?

You better tell others of your definition, and define paternalism, including the authors of the paper above.

Eric H July 29, 2012 at 9:57 am

I don’t think Doug has defined it at all – he has given examples. The definition used in the paper is “By ‘paternalism’ is meant conscious attempts to alter the ‘choice architecture’ that people face with the purpose of helping them make better decisions, as judged by themselves or others. One basis for the discussion is research findings in behavioral economics that make clear that economic decision-makers are often far removed from the rational homo economicus. They are rather characterized by cognitive limitations and biases, and they are affected or afflicted by such things as imperfect self-control, framing effects, loss aversion, endowment effects, choice bracketing, information and choice overload and a poor grasp of probability calculations” The paternalist believes that the economic actor is controlled by biases, especially when the consequences are not immediate or certain. Entering a busy intersection without regard to trucks crossing your path is not likely to meet that test; the consequences of sparring with trucks will be immediate and nearly certain. The long term consequences of drug use and large soda consumption are neither obvious nor certain.

Bill July 29, 2012 at 12:25 pm

Eric, Note that Doug’s definition of paternalism differs from the authors definition : Dougs definition of paternalism is based on nudge intervention when no one else is injured other than the actor.

Agree with many of your points, including the one below that when we design cities, we also alter the state of nature by deciding on off ramps, choosing roundabouts, etc. It’s just that people seem to have a problem with seeing that behavioural choices, and obstacles to rational choice, are made ALL along the way, and stopping at one point in making those decisions is folly, particularly when other decisions were made earlier in the game assuming rational behavioural choices would be made later (ie, design an intersection and not assume a stop sign later.) Moreover, who is to say we made good initial decisions in the initial design; and, if we didn’t, why shouldn’t we use some other methods to lessen or ameliorate the damage.

Eric H August 5, 2012 at 10:34 am

“Note that Doug’s definition of paternalism differs from the authors definition : Dougs definition of paternalism is based on nudge intervention when no one else is injured other than the actor.”

Although, again, I don’t believe that Doug has *defined* it at all, he has merely given examples, (1) it does seem that Doug’s examples are not contradicted by the definition given by Berggren, but are a subset, and (2) Doug’s examples are aligned with the definition given by Thaler and Sunstein: “We believe that the anti-paternalistic fervor expressed by many economists is based on a combination of a false assumption and at least two misconceptions. The false assumption is that people always (usually?) make choices that are in their best interest.” Thus, Doug’s understanding is entirely consistent with the best-known book on the subject, as cited in the paper from the OP.

You could also try the Wikipedia entry as well as this collection of definitions. The overwhelming majority seem to contain some reference to the concept of intervention by an authority for the good of the person affected (“for their own good”). I think that your attempt to link “paternalism” to “social welfare” is not in the mainstream of understanding of that term.

Eric H July 29, 2012 at 9:37 am

“Does placing a stop sign at a very busy intersection, thereby reducing death and injury, constitute paternalism.”

I believe that “state of nature” has little meaning in your example. Who built the intersection or the roads? Was it not obvious that the traffic was high in this area previously, or did a new development project change traffic patterns? In this part of the country, new development projects usually come about because the city or county have pressed the federal government to release BLM lands. Then the city council – which is mostly comprised of members of the Realtors Association – turns it over to a developer (80% chance that the developer is comprised of themselves). The city pays for the infrastructure, the houses are sold at high private margin (low or perhaps negative social margin), and all of the new services needed – police, fire, trash, sewer, schools, new high volume traffic arteries to service these new suburbs, etc. – are portrayed as necessary public goods. Meanwhile, there are unused lots, houses, commercial and industrial space, and apartments everywhere in town. So in most cases, the city government has created this “need” for stop signs out of thin air.

As for the analogy itself, Why was a roundabout not selected? What is the definition of “busy”? Was the stop sign put up there even though busier and/or more dangerous intersections in town were ignored? The decision-making process of those making the paternalist choices should also be under scrutiny.

Turkey Vulture July 28, 2012 at 2:51 pm

I call myself a libertarian, but I don’t believe people are very good at making utility-maximizing decisions, myself included. We all do a lot of dumb things.

That’s why I am sympathetic to the idea of a “Nudge,” at least where there is going to be a default of some sort, and where the cost of changing the default is extremely low. The automatic-enrollment in a 401k seems like a pretty soft nudge, and in a direction that most people claim is their preference.

In any kind of organized society there are going to be default rules. The law of contract, for example, is full of them, and this is socially preferable: it saves contracting parties from having to fully specify every conceivable contingency every time they make a contract. So if we are going to have these default rules anyway, then there should be general agreement that these rules should be structured to produce the best outcomes. In that case, it’s better to approach the rule-making from a Nudge-like behavioral economic perspective than a classical economic perspective, as the former seems to provide a better account of human behavior than the latter.

Donald Pretari July 28, 2012 at 5:58 pm

Politicians aren’t Nudged. They’re Shoved by Special interests. That’s Political Economy.

jjjulio July 28, 2012 at 6:26 pm

Doug

Somebody thought of this and tried it.

http://www.csmonitor.com/World/Europe/2008/0912/p07s03-woeu.html

perfectlyGoodInk July 29, 2012 at 9:42 am

In a 2005 paper, Barbara Bergmann wrote that the high degree of government hiring of economists created a strong incentive for them to divide themselves into two camps that supported policies that the two parties liked. Most sciences have a variety of dimensions of debate, but macroeconomics seems to focus on the degree of government involvement in the economy.

Republican: Classical, New Classical, Monetarist/New Monetarist, Austrian, Supply Side
Democrat: Keynesian/New Keynesian, Institutionalists/New Institutionalists, and arguably Behavioral and Post-Keynesian

Indeed, in the case of New Classical versus New Keynesian, the political debate persisted after the methodological debate was settled. In a less ideological science, you would have expected fresh new divisions over some completely different topic.

Daniel Artz July 29, 2012 at 10:32 am

Let us take as a given that everyone has cognitive biases that affect their own decisionmaking; individual market participants, liberal politicials, conservative politicians, libertarian politicians. That being the case, what policy position is the least likely to result in harm (or rather, which position is likeliest to result in the least harm) to the overall economy? If an individual market participant acts based upon his or her own cognitive biases, the resulting transaction is only going to be a very miniscule part of the overall market. Moreover, there is a strong possibility (likelihood?) that other market participants will have cognitive biases that go in the opposite direction, so that the overall effect of all cognitive biases is largely cancelled out. If, however a state actor, with power to direct a given market, is allowed to legislate his or her cognitive biases into law, that causes a direct and large impact on the market. If we follow the cardinal rule of the Medical profession — “First, Do No Harm” — then the policy implications are that we are almost always better off not trying to regulate away or interfere with the cognitive biases of individual market participants. IOW, statist responses to percieved cognitive biases of market participants will almost always be counterproductive, and introduce a greater distortion to a given market than the percieved problem such statist responses were designed to solve.

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