Thursday, January 3, 2008

The Rationality Divide in Politics?

According to Leonhardt in yesterday’s New York Times, the fault line between Clinton and Obama runs through the rationality postulate. Hilary’s citizenry is rational and responds to precisely calibrated market incentives; Barack’s is guided by impulse and habit and can only be moved by big policy objects in bright colors with thick borders. Is this the revolution in economics we’ve been hearing about?

Leonhardt locates the Obama/Goolsbee strategy in the rise of behavioral economics, an approach that replaces robotic rationality with a psychologically realistic characterization of real-world decision-making. In particular, he is drawing on the field of behavioral law and economics, which emphasizes commonplace cognitive “biases” that prevent people from acting consistently in their own interests. Examples include “availability bias” (attributing greater-than-actual probability to outcomes that are vivid or widely publicized), “status quo bias” (resistance to switching from A to B, or if starting with B, from B to A) and the inability to cope with high levels of complexity (such as public benefits few apply for because the forms are too complicated).

With this view of human fallibility, it is not surprising that practitioners of this sort of economic thinking incline to paternalism. The non-biased minority with impeccable cognitive skills (you know who you are) must take it on themselves to guide their less capable brethren toward more rational choices. I exaggerate, but not too much, as those who have delved into this literature will recognize. Yes, there is elitism in the traditional incentive-based approach too, but it is at least honest and transparent in its methods. The flagship policy innovation of the behavior-wonks, making participation in private savings plans the default option, so that workers would have to choose to opt out (rather than making no savings the default and asking them to opt in), combines the we-know-what’s-best-for-you of the incentive school with a kind of tawdry manipulation. Of course, it may also work better.

But loyal readers of this blog should be aware that behavioral economics is much larger than its portrayal by Leonardt. For one thing, much research now focuses on the differences in behavioral patterns across the population. Rather than fixing on the central tendency, attention has shifted to the dispersion. What this will mean for policy is not clear at this point, but it has to lead to greater diversification and decentralization of the means and ends, don’t you think?

Another important departure concerns the emergence, reproduction and evolution of social norms governing economic (and other) behavior. Many, myself included, think this has enormous potential for changing how we think about politics and human well-being. It reintroduces cultural factors that have been banished from proper economics for generations, not least of which are the gender norms emphasized by feminist economists. And what about the effect that changes in governmental policies and business practices have on the norms governing income distribution? We have begun to see empirical work in this area and it is a safe prediction that we’ll see a lot more.

I hate writing these vague, sweeping posts, but it would take much more than a few paragraphs to properly document the upsurge in behavioral research. The point for now is: the policy space spanned by Clinton and Obama is minuscule compared to the opportunities for new thinking in economics that already exist.


Bruce Webb said...

"Asked to name the single reason they support their candidate, 71 percent of Edwards proponents name "position on issues," as opposed to 44 percent of Clinton's backers, and 34 percent of Obama's supporters."

From Ezra Klein. Which may explain why Obama is getting away with Goulsbee-speak, his followers apparently know little and care less about the implications of what he is saying for his economic policy. Where Krugman sees 'Danger' they seem to see 'Dream'.

Anonymous said...

What bruce says is, sad to say, all too true. I've often expressed my own political pessimism on this blog and the pronouncements of the current crop of candidates is no reason to expect change. The political establishment as it is at present has made it all too clear that they serve a fixed and limited range of constituents who cannot be described as the electorate. They know that simplistic phrases and feel good images are easy substitutes for substantive policies that meet the needs of the greater majority. Unfortunately that majority is only too willing to accept the sound bites. The complexities of real economic and political life seem too daunting.
By the way, for another even more cynical view of our political situation I recommend you to this article on the Huffington Post:
Disclosure: Ian is my son, so I try to boost his work at every opportunity.

Anonymous said...

i have expressed my unease about obama elsewhere. but the fact is that you don't get elected in this country on the basis of facts, or policy, or sanity.

it takes a soundbite to raise a village.

i won't vote against any democrat, but i am prepared to be fooled again.

yoshi said...

When I think of hillary and my friends that support her - "rationalism" is not the word that comes to mind. Pure emotion is driving the support for hillary. Those who think and have independent opinions and are not republicans go after Obama. So being the New York times I am not surprised they went the emotional route.

Bruce Webb said...

Yoshi and what we see is projection.

By an odd coincidence dKos diarist BenGoshi put up a challenge to Obama supporters.
"I'm an attorney. I've compromised and settled many more cases than I've had to try. But I also know, from about 17 years of experience in taking on the worst of offenders, that no large corporation or insurance company has, or will, EVER come to the bargaining table unless their made to: appeals to "reason" and "doing the right thing" are taken as weakness by the corporate behemoths. Mind you, they can be brought to the negotiating table: when you've got their balls in a vise.
But sweet talk, while no vice, ain't no vise. Or, to quote Kosniac philgoblue: "(Mere) hope will lose to the profit motive". "

His challenge to Obama supporters was to answer in a substantive way how their man was going to overcome this fundamental intransigence. More Ben

"I wonder how many Obama supporters have actually filed fraud, bad faith, personal injury, discrimination or other such lawsuits against large corporations and insurance companies and have seen what they're like when you (1) accuse them of wrongdoing; and, (2) try to separate them from their profits. I've represented clients in claims and cases against the likes of Allstate, Halliburton, Accor, ServiceMaster and a host of other insurance companies and corporations. They. Do. Not. Negotiate. Unless. They're. Made. To. Negotiate. They laugh long and loud at "sweet reason" and appeals to conscience."

The responses are telling, in the course of 866 responses (even for dKos a big thread) no one seemed willing or able to address his argument in a substantive way. Instead all he got back was "pure emotion". Final word from Ben

"Over and over again Obama supporters (below) ignore this diary's request for a SUBSTANTIVE answer and just say "he has a track record" -- and simply can't or won't cite any real-world examples of how Obama's used Happy Conciliation (right from the get-go) to bring a conscienceless Neo Robber Baron to the bargaining table. Gad."

Anonymous said...

The recent past activities of the Senate provide ample evidence that sweet talk and compromise are not, not, not part of the Republican, DLC,
or simply the established power structure on either side of the aisle, game plan. Troops are in Iraq with no sign of preparing for departure any time in the foreseeable future. The income disparity continues to grow unabated. Health care funding is a joke to all but the insurance companies that handle the cash. And we still have a draconian approach to civil liberties in the face of the bogeymen fantasies of Bush and Co. Frankly, the political/electoral process is a damn joke.

Anonymous said...

In case it isn't clear, my last comment was meant to highlight the fact that none of the current candidates from either party have made it clear that they intend to do something about the injuries to working class America that have been piling up over the past three decades, and accelarating over the past ten years. Do we hear from any one more than vague platitudes about "change" and "cooperation?"
No one stands out as being definitively for any thing. Who would know from Obama's promises what he acctually will settle for, other than the fact that he will settle? Hillary has been around for even more time doing just as little to advance the interests of working people. Any one who does come closer, and no one stands out in this regard, to a platform of ideas and intentions that is clear cut is marginalized. What one clear plan does any of the candidates offer on Iraq, health care funding, social security, etc.? "I'll fix this , or I'll fix that." "I'll lay out a game plan for this or that." Such inuendos are not sufficient becasue they tell us nothing of genuine intentions and degree of strength behind an intention.

It is a truly sad state of affairs that after eight years of an Executive Branch that has bordered on treasonous behavior, in that it has been wholey dishonest with the Congress and the people, there is not a candidate that sounds committed to anything other than getting elected.

Anonymous said...


couldn't agree more.

but they are giving the people what they want:

sound bites.

easy answers to imaginary problems.

the real problems they don't want to think about. said...


Let us keep in mind that this "rationality" versus "behavioralism" divide is not directed at all to the motivations or thought processes of the supporters of the candidates. If anything, it is clear that supporters of Edwards have thought more "rationally" about the issues at least, if not necessarily the candidates personally, than those supporting either Hillary or Obama. Most of those people are supporting on strictly emotional grounds.

The issue was what kind of economic theory they tended to think in terms of, or their advisers did or do, when thinking about policy. In this regard, I would also warn that "rationality" a la Clinton is not necessarily more combative than the "behavioralism" of Obama. After all, rationality can lead one to negotiating and seeking "third way" agreements, which were the hallmark of the previous Clinton administration and its triangulations.

BTW, I should probably comment on this on my own about to disappear posting on "Economists for Edwards," but I guess it is not irrelevant here. Chip Poirot, one of the signers of that, put up a posting on daily kos about Economists for Edwards, now scrolled off . Also, apparently the Edwards campaign put out a press release describing us as "leading economists."

This latter led a bunch of commenters, some of them openly for Obama, others not, to complain especially about the Edwards campaign label. The general gripe was that we were supposedly insufficiently "leading," the claimed evidence (beyond those who said "I never heard of any of these people, besides maybe Galbraith, and there I am probably thinking of his late dad), was that none of us has received a Nobel Prize or is at a "top ten school" (plus that some folks do not have economics Ph.D.'s). Some folks also figured out that a lot of the signers, although not all, are "heterodox" in some way or other, with a bunch especially having links to the Post Keynesians, e.g. Paul Davidson, among some others.

So, it is true that none of us have received a Nobel Prize and that none of us are at a "top ten" economics department, even if one allows for some debating over which schools fit into that category. It is also true that most of us are heterodox to some degree or other. So be it, although obviously I think that we are more right about a lot of stuff than the mainstreamers.

Anyway, I shall poke back in kind. When one looks for economic advisers to Hillary one gets people like Sperling. Well, he may have been in a high position in the former administration, but he has never published much, has never had any academic positions of any standing, and sure as hell is never going to get a Nobel Prize. He is a policy hack who engages in triangulation.

As for Obama, he does have three people who are in "top ten" departments (the Obama people seem to have been more worked up over this "credentialization" issue). Two are people I have never heard of at Harvard. The other is the big boss, Austan Goulsbee, who is at the still tending to be right wing University of Chicago, certainly the most conservative of all the top ten departments, or even the top 15. Goulsbee is known nationally for discussions of policy, but I would suggest that he is not more of a "leading economist" than is Jamie Galbraith. He is not one of the top people at Chicago and also is no candidate for a Nobel.

In the end, of course, these advisers must be viewed for what they are bringing to the table. Goulsbee is bringing half-baked analysis of social security and half-baked appeals to triangulation before even trying to push anything. These people are in no position to point fingers.

(an "Economist for Edwards")

Anonymous said...

Well said, but you should add that it was that very "top of the top" (top of what remains to be discussed) Chicago school that could be said to have reeked havoc with economies arouond the globe. Havong a big library in addition to a faculty on big time retainer to industry and capitalism in general does not necessarily qualify as the intellectual top of anything.

Anonymous said...

Jack's comment about the Senate is the point on which Obama's rhetoric should be challenged.

Obama's been in the Senate majority for a year but has he persuaded 9 Republican Senators to support even one cloture vote ?