Behavioral Economics – Pro-Government Bias by Bryan Caplan, Foundation For Economic Education

95% of BE Policy Proposals Forget That Government Is Run by Humans

Behavioral economists often use their findings to argue for government intervention. Critics of behavioral economics often accuse its practitioners of a tacit double standard: Human irrationality is a poor argument for government action because officials are human.

Question: Can behavioral economists really neglect such a basic critique of their position?

Yes. In “Time for a Behavioral Political Economy” (Review of Austrian Economics 2012), Niclas Berggren classifies over 300 papers in behavioral economics. Does the paper offer any policy recommendation? If so, does the paper acknowledge that policymakers are subject to the same foibles as everyone else?

Berggren:

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?

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. 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.

Results:

Our main findings are that 20.7% of all articles in behavioral economics in the ten journals contain a policy recommendation and that 95.5% of these do not contain any analysis at all of the rationality or cognitive ability of policymakers.

In fact, only two of the 67 articles in behavioral economics with a policy recommendation contain an assumption or analysis of policymakers of the same kind as that applied to economic decision-makers.

In the remaining 65 articles, policy recommendations are proffered anyway.

What difference does it make? Berggren’s handy flowchart elegantly shows what’s at stake:

Behavioral Economics

Behavioral Economics

My one quibble: What Berggren calls the “behavioral political economy insight” is overstated.  The question is not, “Do politicians and bureaucrats have problems with their decision-making in the form of irrationality, poor self-control, cognitive limitations, etc.?”

The question is, “Are politicians and bureaucrat’s problems with their decision-making in the form of irrationality, poor self-control, cognitive limitations, etc. serious enough to make the policies they choose a net harm?”

Cross-posted from Econlog.