Behavioral Political Economy

I was interested to read "Behavioral Political Economy: A Survey" by Jan Schnellenbach and Christian Schubert. (HT marginal revolution's irresistible links.)

Context: I have long been puzzled at the high correlation between behavioral economics and interventionism.

People do dumb things, in somewhat predictable ways. It follows that super-rational aliens or divine guidance could make better choices for people than they often make for themselves. But how does it follow that the bureaucracy of the United States Federal Government can coerce better choices for people than they can make for themselves?

For if psychology teaches us anything, it is that people in groups do even dumber things than people do as individuals -- groupthink, social pressure, politics, and so on -- and that people do even dumber things when they are insulated from competition than when their decisions are subject to ruthless competition.

So on logical grounds, I would have thought that behavioral economists would be libertarians. Where are the behavioral Stigler, Buchanan, Tullock, etc.?  The case for free markets never was that markets are perfect. It has always been that  government meddling is  worse. And behavioral economics -- the application of psychology to economics -- seems like a great tool for understanding why governments do so badly. It might also inform us how they might work better; why some branches of government and some governments work better than others.

This nice paper got my attention, since the paper says that's starting to happen.

...Assuming cognitive biases to be present in the market, but not in politics, behavioral economists often call for government to intervene in a “benevolent” way. Recently, however, political economists have started to apply behavioral economics insights to the study of political processes, thereby re-establishing a unified methodology. This paper surveys the current state of the emerging field of “Behavioral Political Economy”

I came away horribly disappointed. Not with the paper, but with the state of the literature that the authors ably summarize.


I notice a lot of theory rather than fact. Stigler and company were deeply empirical.  That theory seems focused almost entirely on individual perceptual and decision-making biases, rather than how people in groups produce bad decisions.

On "theory," you can see where we're going with

We distinguish between a “weak” and a “strong” variant of BPE. The former merely alters specific auxiliary assumptions on either agents’ cognitive capacities or the content of their utility functions, by arguing, for example, that voters not only care about political outcomes, but also about their “citizen duty” when going to the polls, or that they care about other aspects that seem irrelevant from an orthodox instrumental standpoint, like a candidate’s looks... The “strong” variant of BPE goes beyond this and attempts to actually explain (rather than just postulate) motivational and other psychologically informed extensions to the standard model. For instance, it may try to examine the mental processes causing differences in agents’ susceptibility to certain biases

In particular, the first substantive section is

2. Voter preferences and voter behavior

which deals with the age old question, why do people bother to vote? Some of the answers

compliance with social norms..costs of moral behavior...utility gained by expressing one’s opinions...direct democracy appears to provide voters with procedural benefits by letting them participate in the decision-making process, independent of altering results in their favor...voters may overestimate the  probability of their personal vote being decisive...

This little quote suggests some of the character of the enterprise

...expressive utility is by now probably the most widely accepted element of BPE. Hamlin and Jennings (2011) define the “expressive” aspects of voting behavior as reflecting benefits from the act of voting that neither derive from its instrumental nor from its consumptive value, but from its symbolic or representational aspect: not from the act, but from its meaning”

The review covered not one salient fact, other the fact that people vote at all. They are all apparently highly complex ex-post stories. How would one even tell these theories apart?

I was expecting (hoping?) for things like, "XYZ study the FAA's perplexing inability to write rules allowing commercial use of drones, analyzing meeting schedules, showing that PDQ's theories of small group dynamics account for the pattern of indecision,'' or "ABC study data collection by Federal Agencies and how the agencies use control of the data to influence academics to write articles supportive of the agency's goals."  I was hoping even for some good stories of how bureuacratic decisions, lobbying results, bill writing, or anything political/economic can be understood by psychology -- or anything else. Alas, no.

After just one section, it's back to people are dumb, so omniscient bureaucrats should manipulate them (not the authors, to be clear, but the literature they are surveying)

3 Policy-makers ...

3.1 What should politicians do? ..

...attempts to derive policy implications from an explicitly “behavioral” model of how citizens respond to policies. Bolton and Ockenfels (2012) suggest an approach they call “behavioral economic engineering” that tries to integrate such ideas. Harstad and Selten (2015) also model citizens as responding to policies in a non-optimizing way: They are guided instead by “lower-dimensional” rules of thumb that are much easier to apply. The authors argue, quite convincingly [?], that policymakers should take these observations into account, as many important policy recommendations go awry when inadequately modeling citizens as homines oeconomici.

Yes, but we were supposed to be here to see what recommendations go awry when inadequately modeling bureacrats and politicians as homines oeconomici, not as deus-ex-machina, or pater familias.

Another little quote to alert you to the prose style you're going to have to master if you want to take up this topic.

Other approaches extend the process-oriented perspective. ...a theory of economic policy-making should take into account how politicians and citizens interpret political problems.... social communication constructs the beliefs in which concrete policy-measures are rooted.... A theory of economic policy would then need to be open to explanatory approaches from social psychology and sociology, which help to understand how common beliefs are formed and dispersed.

Again, and again, things we ought to listen to in order to construct new theories. Please could we try to study a single fact?

Finally I seemed to find what I was looking for

4. Bureaucrats, regulators, and lobbyists

And

While there is a very broad literature on how bureaucrats should efficiently regulate the actions of individuals suffering from choice imperfections, [!] so far there is very little research on the biases that regulators themselves may be subject to (see however Kuenhanss et al. 2015 and Tasic 2011 for a first survey). 

Aha! But the hoped-for research isn't there. For example,

 Guided by re-election concerns, they [politiicans] will choose to regulate those risks that are perceived to be particularly salient by the general public at a given point in time, which may direct regulatory resources away from other, objectively more pressing but less salient risks (Jolls et al. 1998)....

regulators face a trade-off between, on the one hand, maximizing social welfare, and, on the other hand, serving their career concerns by following the politicians’ demands. 

That is not terribly deep to put it mildly.

I was hoping for solutions, empirical evaluation guided by theory of what larger frameworks produce better outcomes. Alas what we get is

The authors suggest some institutional remedies that could alleviate the problems of bias in bureaucracies. An example is “de-biasing” by assigning a team within the bureaucracy to play the role of advocatus diaboli, and thereby make sure to get all arguments on the table. Another proposal is to incentivize bureaucrats by making parts of their rewards dependent on long-term outcomes

Madison and Hamilton on separation of powers this is not. (And a great example of my least favorite verb voice, the regulatory passive. "To incentivize." Who is going to do this "incentivizing" please?)

I had some hope finally for

5. Applying BPE: Two examples 

But no. The two examples are

5.1. Libertarian Paternalism..as popularized by Thaler & Sunstein (2008)

Back to Gruberism.

5.2. The Long-Term Effects of the Welfare State 

A suggestion that "social norms" can mollify the disincentives of the Welfare State.

The conclusion is ringing. Once again, bravo to  Schnellenbach and  Schubert:

We have also seen that what makes political behavior a particularly suitable candidate for applying insights from psychology is the fact that it exhibits incentive structures that differ markedly from those prevailing in the marketplace: Behind the veil of insignificance, people are essentially free to pursue any kind of non-standard goals. [Amen!]

But,

... BPE models still often display an asymmetry with regard to their basic assumptions, when, for example, “behavioral” voters are modeled as interacting with perfectly rational policy-makers or lobbyists. There is a danger here to introduce a new dichotomy in behavioral assumptions without much concern for the empirical evidence.

Indeed.

The opportunity for deeply empirical, behavioral public-choice economics, studying how individual and group psychology helps us to understand government failures. And hopefully, to craft instutitonal structures that will lead to better outcomes.

Why not? Perhaps, to indulge in a little behavioral ex-post story telling of my own, a behavioral Stigler would be hated equally by the public choice school, which uses rational-actor economics, and by behavioral economists, who seem, in this wide-ranging review, to remain overwhelmed by dumb-voters-in-need-of-our-enlightened-guidance dirigisme.