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Behavioral Public Choice Theory

October 24, 2010

Matt Ridley points to a paper by Slavisa Tasic, “Are Regulators Rational?” The answer is no–they suffer from cognitive biases as well, such as action bias, motivated reasoning, the focusing illusion, the affect heuristic, and illusions of competence. Whither the “nudge” for bureaucrats? From Tasic’s intro:

The aim of this paper, however, is not to assess the validity of behavioral economics itself, but to show that association of behavioral economics with one kind of policy conclusions has been misplaced. Whatever the other merits or limitations of behavioral economics may be, the issue this paper deals with is only its one-sidedness–its nearly exclusive focus on market participants and its neglect of policymakers who are supposed to remedy the failures of the markets. Rarely have behavioral arguments been used to question the knowledge and rationality of policymakers and regulators, and the reason for this neglect is not in the lack of utilizable psychological research. Cognitive psychology in fact offers many findings that are equally applicable to other participants in policymaking process.

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