Saturday, 30 January 2010

Are governments more rational than citizens? Well, yes

Here we go again.

Every so often, somebody reads about a policy idea based on behavioural economics and thinks they're so clever to have come up with the following counter:
"Well people may be irrational, but people who work in the government are just as irrational. Therefore their attempts to regulate will be just as flawed as the behaviour they're trying to fix."
Now to be fair, Chris Dillow is clever, but he falls into the same trap here. Of course politicians and civil servants make many incorrect judgments, and have the same cognitive biases as any of us.

But this is irrelevant. We don't expect physicists and engineers to be immune from the law of gravity. Yet we still trust them to design planes that can help us transcend our own gravitational problems.

The goal, of course, is to design a limited number of interventions to help achieve agreed-on social goals - designing them carefully, rationally and with sufficient time and thought to avoid as many cognitive traps as possible. We are all subject to cognitive biases when we make fast decisions, but when we have enough time, we can also discover what those biases are and put structures in place to help avoid them.

And just as we delegate many decisions on healthcare to doctors, education to teachers, and aeroplane design to aeronautical engineers, we will delegate many of our decisions on economic policy to economic policymakers. Naturally this might include decisions about the default savings options for pensions, the design of taxes and the best ways to label consumer products. The point is not that civil servants are better or smarter than normal people. It's simply that they are specialists. They have the time and resources to think through certain decisions in a much more detailed way than you or I, living our busy, distracted lives.

I'm really not trying to stand up for George Osborne here - Chris and Tim Worstall rightly pick out some weird examples from his article - but behaviourally-informed policymaking does deserve to be defended. The idea that we shouldn't make any regulations, just because the regulators are human, is (have I heard this word somewhere before?) glibertarianism.

No comments: