New justifications for government intervention based on behavioral psychology rely on a behavioral asymmetry between expert policymakers and market participants. Public choice theory applied the behavioral symmetry assumption to policy making in order to illustrate how special interests corrupt the suppositions of benevolence on the part of policy makers. Cognitive problems associated with market choices have been used to argue for even more intervention. If behavioral symmetry is applied to the experts and not just to market participants, problems with this approach to public policy formation become clear. Manipulation, cognitive capture, and expert bias are among the problems associated with a behavioral theory of market failure. The application of behavioral symmetry to the expanding role of choice architecture will help to limit the bias in behavioral policy. Since experts are also subject to cognitive failures, policy must include an evaluation of expert error. Like the rent-seeking literature before it, a theory of cognitive capture points out the systematic problems with a theory of asymmetry between policy experts and citizens when it comes to policy making.
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Kahneman survived Tversky to win the prize in 2003, Robert J. Shiller won the prize in 2013 for work on asset prices informed by behavioral finance, and Richard Thaler won in 2017 for work in behavioral economics.
Lee and Clark (2018) argue that Thaler's behavioral approach affects the way political decisions are made far more widely and deeply than the ways in which market decisions are made, despite the focus on behavioral market failure.
Boettke (2011, p. 265, 269) argues when “policy experts who act like saviors” they become players in the game seeking better outcomes rather than acting like referees that merely call fouls.
Boettke and Lopez (2002, p. 112) characterize our assumptions about policymakers in terms of benevolence and omniscience; this analysis adopts that distinction.
This insight is later developed by Stigler (1971) and others.
Kahneman and Frederick (2007, p. 46) outline a two-system framework. System one is the more commonly used set of heuristics, rule-based judgment. System two is the deliberate rational analysis that more often is assumed to flow from expert judgment.
Viscusi and Gayer (2015, p. 981) question the ability of behavioral policy to improve on errors in the market through reliance on “well-meaning technocrats”.
Manipulation here is defined by Joseph Raz (1986): “Manipulation, unlike coercion, does not interfere with a person’s options. It instead perverts the way that person reaches decisions, forms preferences, or adopts goals” (quoted in full by Sunstein 2017, p. 117).
Clark and Lee (2016, p. 44) support the notion that politicians ignore the promises they make when they get elected in favor of the priorities set by interest groups. Stigler (1970) named the tendency for public expenditure to reflect the interests of the middle class, “Director’s law”. To generalize that insight, policy always will reflect the preferences of those with the strongest political voices. Shughart and Thomas (2015) argue that “regulatory rents” are distributed according to the loudest voice.
Schubert’s (2017, p. 513) “is-ought-heuristic” suggests that use of manipulation by the state gives legitimacy to policy interventions based on the fact that they are enshrined in law or enacted by government agencies.
If the same outcome were possible with a nudge or a tax, a nudge might be preferred because people value the ability to opt-out as representing respect for individual autonomy. Schubert (2017, p. 510) also discusses how nudges are more popular than taxes, but less effective in delivering policy aims. This choice of popularity over ends should result in more policy that reflects politically popular beliefs. If popular beliefs are enshrined in choice architecture, they become a form of manipulation.
Amir and Lobel (2008, p. 2126) make a distinction between “education, manipulation, and coercion”. To educate is to give the information necessary for judgment; much of behavioral policy simply replaces judgment entirely. The whole justification for nudges is that opt-outs are low-cost, which if true would merely identify a policy maker’s preferred option as the default.
The claim that the status quo is arbitrary implies a ranking of the deliberate and rational construction of rules above any sort of evolutionary process that uncovers inarticulate information. It is a preference for the explicit over the tacit. See Smith’s (2003) discussion of “Constructivist and Ecological Rationality”. Smith shared the 2003 Nobel Prize with Daniel Kahneman, who was recognized for the effect his ideas had on behavioral economics.
An ethically chosen status quo includes considerations of “welfare, autonomy, dignity, and self-government” (Sunstein 2017, p. 117).
The knowledge problem is at the core of the rejection of the new paternalism. Rizzo and Whitman (2009, p. 905), note that most policymakers simply assume away the problem of articulating and aggregating information.
Viscusi and Gayer (2015, p. 981) question the ability of behavioral policy to improve on errors in the market by relying on “well-meaning technocrats”.
One reason for this difference is a misunderstanding of the word “rational.” Following Foley (1987) a distinction exists between the “epistemic rationality” of the policymakers fully informed by scientific literature and the “instrumental rationality” of the individual actors making market decisions. The claim that policy is epistemically rational works only if omniscient policymakers write policy. By contrast, Simon (1955, p. 1956) proposed more of a trial-and-error approach to rationality based on cost of correcting flawed heuristics. For example, Kahneman and Frederick’s (2007) discussion of systems one and two fails to account for how people may update their heuristics when holding them is particularly costly. North (1993) suggests that policy is just a set of heuristics, and subject to the same test of validity—does it reduce transaction costs?
An important reason can be found for being skeptical of policy prescriptions based on laboratory experiments. Viscusi and Gayer (2015, p. 976) invoke Gary Becker’s statement on the limitations of behavioral economics and its insights into actual market actors.
For a description of how life-cycle funds have become the default investment strategy see (Viceira 2009, pp. 142–148).
Sunstein (2014, p. 17) writes “In the face of behavioral market failures, nudges are usually the best response, at least when there is no harm to others.” He purposely invokes Mill’s bias against action, the harm principle, and argues that the bias should be to nudge when behavioral errors are identified.
Congdon et al. (2011, p. 66) suggest that policymakers have a duty to structure educational choices for low-information parents. This is a great example of how policymakers might have pedagogical expertise, but undermines any consideration of when experts lack the local knowledge parents might have about their children and their local educational options.
Farelley et al. (2012) detail the rather substantial effects that cigarette taxes in New York State and New York City had on the lowest income earners, doubling the fraction of disposable income spent on smoking. See Hoffer et al. (2014) for a description of the rise of disfavored taxation as an attempt to increase tax revenues at all levels of government.
The literature on the regressive effects of regulation emphasizes that low-income persons are likely to have non-standard preferences from the point of view of policymakers. That asymmetry systematically will intensify the regulatory burden on lower income individuals and households. For an example of regressive effects in childcare policy, see Gorry and Thomas (2017); for entry regulations, see McLaughlin and Stanley (2016).
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The author would like to thank Anthony Gill, Edward Lopez, William F. Shughart, II, Diana W. Thomas, and the participants of the Free Market Institute at Texas Tech’s graduate brown bag workshop, in particular Ben Powell, for their helpful comments on a draft of this paper. The usual caveat applies.
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Thomas, M.D. Reapplying behavioral symmetry: public choice and choice architecture. Public Choice 180, 11–25 (2019). https://doi.org/10.1007/s11127-018-0537-1
- Behavioral symmetry
- Behavioral policy
- Policy failure