Public choice theory is the branch of economics that examines how politicians, civil servants, and voters make decisions (Mueller, Reference Mueller2003). We are delighted that Chater & Loewenstein (C&L) have brought public choice considerations to the behavioral public policy conversation. C&L suggest that political momentum around nudges has been coopted by concentrated interests to avoid more effective systemic interventions. We agree with C&L's core theses: Nudging is overemphasized in behavioral policy discussions; individual-level thinking is psychologically natural (Johnson & Nagatsu, Reference Johnson, Nagatsu, Schupbach and Glass2023); but it cannot substitute for systems-level thinking about systemic problems.
We also agree with C&L that wise policy making must incorporate public choice considerations to avoid unintended consequences. Here, we apply that dictum to traditional “s-frame” regulations – complementing C&L's critique of “i-frame” nudging – through both a classic public choice lens and a newer behavioral public choice lens.
Classic public choice. Public choice economists have long observed how the political process can derail traditional regulations, such as taxes, subsidies, bans, standards, and regulatory agencies:
• The same concentrated interests that C&L rightly fear in the domain of nudging can also wreak havoc over traditional regulation (Olson, Reference Olson1965). For example, although agriculture employs few workers, agricultural subsidies benefit the agricultural industry while exacerbating social problems such as pollution and obesity (Franck, Grandi, & Eisenberg, Reference Franck, Grandi and Eisenberg2013). Anticompetitive airline regulation imposed price floors, leading to dramatically higher consumer prices until the 1978 deregulation (Maynard, Reference Maynard2008). To this day, the US tax preparation industry persistently lobbies against efforts to simplify the federal tax code (Elliot & Kiel, Reference Elliot and Kiel2019).
• Large organizations frequently lobby for regulations that will stymie competition, often with little public benefit (Stigler, Reference Stigler1971). The saga of Turing pharmaceuticals drastically raising the price of off-patent daraprim (Pollack, Reference Pollack2015) shows how pharmaceutical companies can game safety regulations to make generic competition infeasible. “Certificates of need” restrict the supply of hospitals, while the American Medical Association's credentialing system restricts the supply of physicians. Even labor unions have lobbied for higher minimum wages while carving out exemptions for firms that employ union labor (Jamison, Zahniser, & Reyes, Reference Jamison, Zahniser and Reyes2015).
• Voters often prefer counterproductive economic policies because they have little private incentive to form rational economic beliefs (Caplan, Reference Caplan2007; Downs, Reference Downs1957), but a strong social incentive for ideological conformity (Kahan & Braman, Reference Kahan and Braman2006). Economists' views of trade, immigration, outsourcing, and technological innovation are far more favorable than voters' (Caplan, Reference Caplan2007). The median voter prefers much stronger restrictions on trade and immigration compared to the median economist, incentivizing politicians to adopt destructive systemic policies.
C&L are surely right that traditional regulations, whether through bans or incentives, will change behavior more than nudging. Yet a public choice analysis suggests that this is a reason for more, not less, caution in proposing regulation: Poor nudging can waste resources; poor regulation can lay waste to us all.
Behavioral public choice. We agree with C&L that the behavioral sciences are crucial for wisely crafting regulations. We suggest that a fundamental, yet neglected, extension of behavioral economics should be taken up in a new field of behavioral public choice that uses psychological principles to understand the behavior of political agents.
A foundational principle in public choice economics is behavioral symmetry (Buchanan & Tullock, Reference Buchanan and Tullock1962): Analyses of economic behavior should make the same assumptions about economic agents (consumers and firms) as political agents (politicians and voters). Behavioral symmetry was originally formulated to rule out the common assumption that economic agents are selfish, whereas political agents are benevolent. But it also rules out the assumption that economic agents are irrational whereas political agents are wise (Thomas, Reference Thomas2019). We fear that policy discussion often conjoins these fallacies: Selfish and irrational consumers, benevolent and wise politicians.
Behavioral public choice can restore behavioral symmetry by understanding how both economic and political agents are boundedly rational. A key goal would be to understand the bounds on political agents' rationality and to model implications for policy implementation (including both nudges and regulations).
Some inroads have been made already toward applying bounded rationality to political agents (e.g., Lucas & Tasic, Reference Lucas and Tasic2015; Viscusi & Gayer, Reference Viscusi and Gayer2015). Indeed, the notion of the “behavioral bureaucrat” has been discussed as long as nudging itself (Jolls, Sunstein, & Thaler, Reference Jolls, Sunstein and Thaler1998). Yet behavioral public choice has so far had disappointingly little influence on policy discussions. One reason may be that we know relatively little about behavioral bias in our capacities as voters, bureaucrats, and politicians, relative to our capacities as consumers, investors, and managers. This shortcoming, however, leads to exciting possibilities for socially impactful and innovative research:
• Voters. Voters have policy-relevant beliefs about the economy (e.g., zero-sum thinking or antiprofit bias; Bhattacharjee, Dana, & Baron, Reference Bhattacharjee, Dana and Baron2017; Johnson, Zhang, & Keil, Reference Johnson, Zhang and Keil2022), about human behavior (e.g., the malleability of behavior; Khon, Johnson, & Hang, Reference Khon, Johnson and Hang2020), and the political process itself (e.g., the efficacy of the government in implementing policy; the perceived appropriateness and effectiveness of regulations vs. nudges; Sunstein, Reference Sunstein2016). How do voters' beliefs and values influence democratic decisions (Caplan, Reference Caplan2007)?
• Civil servants. Civil servants who implement policy are the middlemen between politicians (who set policy) and voters (who are affected by policy). Thus, they are simultaneously making decisions on behalf of voters while they are accountable to political institutions. Although there is literature on how both delegation (e.g., Polman & Wu, Reference Polman and Wu2020) and accountability (Lerner & Tetlock, Reference Lerner and Tetlock1999) affect decision making, the psychologically unique position of bureaucrats in governments and other organizations has been little studied.
• Politicians. As little as the psychology of bureaucracy has been studied, even less is known about the psychology of politicians. What are politicians' mental models of voters (what will maximize their vote share)? What measures could encourage politicians to carry out voters' will (as opposed to those of concentrated interests) or, indeed, to ignore their will in cases where voters' preferences are irrational or immoral (Brennan, Reference Brennan2016)?
Such investigations will prove crucial if behavioral science is to wisely contribute to effective policy, whether in the form of nudges, regulations, or new species of intervention.
Public choice theory is the branch of economics that examines how politicians, civil servants, and voters make decisions (Mueller, Reference Mueller2003). We are delighted that Chater & Loewenstein (C&L) have brought public choice considerations to the behavioral public policy conversation. C&L suggest that political momentum around nudges has been coopted by concentrated interests to avoid more effective systemic interventions. We agree with C&L's core theses: Nudging is overemphasized in behavioral policy discussions; individual-level thinking is psychologically natural (Johnson & Nagatsu, Reference Johnson, Nagatsu, Schupbach and Glass2023); but it cannot substitute for systems-level thinking about systemic problems.
We also agree with C&L that wise policy making must incorporate public choice considerations to avoid unintended consequences. Here, we apply that dictum to traditional “s-frame” regulations – complementing C&L's critique of “i-frame” nudging – through both a classic public choice lens and a newer behavioral public choice lens.
Classic public choice. Public choice economists have long observed how the political process can derail traditional regulations, such as taxes, subsidies, bans, standards, and regulatory agencies:
• The same concentrated interests that C&L rightly fear in the domain of nudging can also wreak havoc over traditional regulation (Olson, Reference Olson1965). For example, although agriculture employs few workers, agricultural subsidies benefit the agricultural industry while exacerbating social problems such as pollution and obesity (Franck, Grandi, & Eisenberg, Reference Franck, Grandi and Eisenberg2013). Anticompetitive airline regulation imposed price floors, leading to dramatically higher consumer prices until the 1978 deregulation (Maynard, Reference Maynard2008). To this day, the US tax preparation industry persistently lobbies against efforts to simplify the federal tax code (Elliot & Kiel, Reference Elliot and Kiel2019).
• Large organizations frequently lobby for regulations that will stymie competition, often with little public benefit (Stigler, Reference Stigler1971). The saga of Turing pharmaceuticals drastically raising the price of off-patent daraprim (Pollack, Reference Pollack2015) shows how pharmaceutical companies can game safety regulations to make generic competition infeasible. “Certificates of need” restrict the supply of hospitals, while the American Medical Association's credentialing system restricts the supply of physicians. Even labor unions have lobbied for higher minimum wages while carving out exemptions for firms that employ union labor (Jamison, Zahniser, & Reyes, Reference Jamison, Zahniser and Reyes2015).
• Voters often prefer counterproductive economic policies because they have little private incentive to form rational economic beliefs (Caplan, Reference Caplan2007; Downs, Reference Downs1957), but a strong social incentive for ideological conformity (Kahan & Braman, Reference Kahan and Braman2006). Economists' views of trade, immigration, outsourcing, and technological innovation are far more favorable than voters' (Caplan, Reference Caplan2007). The median voter prefers much stronger restrictions on trade and immigration compared to the median economist, incentivizing politicians to adopt destructive systemic policies.
C&L are surely right that traditional regulations, whether through bans or incentives, will change behavior more than nudging. Yet a public choice analysis suggests that this is a reason for more, not less, caution in proposing regulation: Poor nudging can waste resources; poor regulation can lay waste to us all.
Behavioral public choice. We agree with C&L that the behavioral sciences are crucial for wisely crafting regulations. We suggest that a fundamental, yet neglected, extension of behavioral economics should be taken up in a new field of behavioral public choice that uses psychological principles to understand the behavior of political agents.
A foundational principle in public choice economics is behavioral symmetry (Buchanan & Tullock, Reference Buchanan and Tullock1962): Analyses of economic behavior should make the same assumptions about economic agents (consumers and firms) as political agents (politicians and voters). Behavioral symmetry was originally formulated to rule out the common assumption that economic agents are selfish, whereas political agents are benevolent. But it also rules out the assumption that economic agents are irrational whereas political agents are wise (Thomas, Reference Thomas2019). We fear that policy discussion often conjoins these fallacies: Selfish and irrational consumers, benevolent and wise politicians.
Behavioral public choice can restore behavioral symmetry by understanding how both economic and political agents are boundedly rational. A key goal would be to understand the bounds on political agents' rationality and to model implications for policy implementation (including both nudges and regulations).
Some inroads have been made already toward applying bounded rationality to political agents (e.g., Lucas & Tasic, Reference Lucas and Tasic2015; Viscusi & Gayer, Reference Viscusi and Gayer2015). Indeed, the notion of the “behavioral bureaucrat” has been discussed as long as nudging itself (Jolls, Sunstein, & Thaler, Reference Jolls, Sunstein and Thaler1998). Yet behavioral public choice has so far had disappointingly little influence on policy discussions. One reason may be that we know relatively little about behavioral bias in our capacities as voters, bureaucrats, and politicians, relative to our capacities as consumers, investors, and managers. This shortcoming, however, leads to exciting possibilities for socially impactful and innovative research:
• Voters. Voters have policy-relevant beliefs about the economy (e.g., zero-sum thinking or antiprofit bias; Bhattacharjee, Dana, & Baron, Reference Bhattacharjee, Dana and Baron2017; Johnson, Zhang, & Keil, Reference Johnson, Zhang and Keil2022), about human behavior (e.g., the malleability of behavior; Khon, Johnson, & Hang, Reference Khon, Johnson and Hang2020), and the political process itself (e.g., the efficacy of the government in implementing policy; the perceived appropriateness and effectiveness of regulations vs. nudges; Sunstein, Reference Sunstein2016). How do voters' beliefs and values influence democratic decisions (Caplan, Reference Caplan2007)?
• Civil servants. Civil servants who implement policy are the middlemen between politicians (who set policy) and voters (who are affected by policy). Thus, they are simultaneously making decisions on behalf of voters while they are accountable to political institutions. Although there is literature on how both delegation (e.g., Polman & Wu, Reference Polman and Wu2020) and accountability (Lerner & Tetlock, Reference Lerner and Tetlock1999) affect decision making, the psychologically unique position of bureaucrats in governments and other organizations has been little studied.
• Politicians. As little as the psychology of bureaucracy has been studied, even less is known about the psychology of politicians. What are politicians' mental models of voters (what will maximize their vote share)? What measures could encourage politicians to carry out voters' will (as opposed to those of concentrated interests) or, indeed, to ignore their will in cases where voters' preferences are irrational or immoral (Brennan, Reference Brennan2016)?
Such investigations will prove crucial if behavioral science is to wisely contribute to effective policy, whether in the form of nudges, regulations, or new species of intervention.
Financial support
This research received no specific grant from any funding agency, commercial, or not-for-profit sectors.
Competing interest
None.