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CNNMoney.com: How Leaders Make Policy Decisions

CNNMoney.com explores if, amid election year rancor, Congress can come together to produce an energy bill; meanwhile, RAND probes how expectations distort short-term decision making.

September 26 is the day set for the House and the Senate to adjourn until after the election. With energy issues persistently at the top of voters’ concerns, many questions loom large.

Should a ban on oil drilling be lifted? Is aggressive conservation enough to reduce reliance on foreign oil? What about heftier taxes on oil companies? And can Republicans and Democrats put aside their differences long enough to get answers to these questions to produce an energy bill in just two weeks? Or will policymakers hit the campaign trail with energy prices – one of voters’ hot buttons – still in abeyance? CNNMoney.com raises these questions.

But “Should they?” more than “Will they?” is the question concerning lawmakers’ hammering out energy policy before adjournment that creates interest for the RAND Pardee Center for Longer Range Global Policy and the Future Human Condition.

The Pardee Center is a leader in collecting and analyzing methodologies for thinking about long-range futures – both of individuals and nations.

Currently, the Pardee Center is seeking examples of long-term policy decisions motivated by expectations of what will occur decades hence – specifically when such decisions are different than those policy makers might reach if they were considering only short-term contexts.

An obvious modern-day example, and the first listed by the Pardee Center, involves policy decisions on climate change, in which near-term actions are heavily influenced by events that are anticipated to happen, although whether they will or not, is unknown.

The Pardee Center also highlights the U.S. Constitution and Treaty of Versailles as historical examples of decisions heavily influenced by long-distant expectations of what the future would be like.

The Pardee Center invites readers to nominate their examples of long-term decisions, officially defined as those that reflect on potential events decades or more in the future, which cause decision makers to consider and perhaps choose near-term actions that are different than those they would otherwise pursue.

You may submit an idea by filling out this Pardee Center survey or writing to Pardee Center Director, Robert_Lempert@rand.org.

How Can Decision Making Be Improved?

That question is the title of a new working paper by Max Bazerman, the Jesse Isidor Straus Professor of Business Administration at Harvard Business School, and his colleagues.

For years, Bazerman has been fascinated with what he calls “the inability of government to make wise tradeoffs,” or to give up small losses for much larger gain.

Contributing factors include a proliferation of special interest groups and a host of “judgment biases” that obfuscate the superiority of certain choices in the public’s eye, prompting constituents of leaders to settle for a middle ground that ironically goes against the grain of what is good for society as a whole as well as the individual members of that society (but not special interest groups).

This aspect of Bazerman’s research is contained in the paper, “Enlarging the Societal Pie: A Cognitive Perspective,” as well as his other research.

In detailing how special interest groups distort the shared goals of society and individuals to their own personal gain, as well as the various judgment biases, Bazerman illustrates his points with examples that include energy subsidies, organ donor programs, wildlife preservation, competition for sports arenas, and the global fishing industry.

Bazerman finds a correlation between the narrow self-interest of the individual and the large scope of what is best for the society when he mathematically computes the so-called “gains” achieved by a special interest-instigated German protest against proposed labor policy. The problem comes when actions designed to strengthen the political power of the special interest are misinterpreted as providing greater benefits to individuals who identify with the group, when the reality is to the contrary, Bazerman explains.

Among the judgment biases that enable voters to tolerate inefficient government policies, Bazerman says are:

1) The Harm of Omission – People (including policy makers) are more fearful of the harms that could result from action than the harms of inaction even when the harms of inaction are greater. Bazerman gives the example of a flu epidemic and an individual with a 10 percent likelihood of contracting the bug. Bazerman discussed what happens when individuals are offered a vaccine that presents a 5 percent likelihood of creating the same symptoms as the flu bug itself. Research has shown, he says, that more people would refuse the vaccine though it reduces the likelihood of flu symptoms, preferring the harms of inaction to the harms of action.

2) Status Quo Bias – Connected to the bias of omission is the bias exhibited by many people of preferring the status quo. “People are more likely to be concerned about the risk of change than about the risk of failing to change, and will be motivated to preserve current systems and beliefs,” notes Bazerman. One can ponder whether this bias is at work in Congressional approval of massive bailout packages as well as its inability to agree on comprehensive reform on issues such as immigration.

3) The Fixed Pie Pitfall – Hefty, black-and-white generalizations about situations and policy decisions dominate this judgment bias, which is strongly exhibited in negotiations and partisan fervor, notes Bazerman. This bias is built on the assumption (when opposing sides battle) that what is good for one side must necessarily be bad for the other side. Bazerman notes a highly counterproductive result of this bias occurs in situations when both sides truly want the same outcome, but settle for another outcome just to preserve their longstanding areas of disagreement (be they individual or party dogma).

4) The Winner’s Circle Curse – This one is highlighted by the high-dollar bidding for sports franchises and stadium improvements that has become trademark with modern day sports. Bazerman says taxpayers are ill-served by this type of competition because the winner more often than not is the party that has most overestimated the benefits of winning. This leads into Bazerman’s example of competition in the global fishing industry when the drive to maximize catches in the present day is allowed to accelerate at the expense of future conditions. By not weighing ramifications of future decisions equally with the desires of the present, decision makers can fall victim to “wishful thinking,” or believing the future will necessarily be better, even though nothing concrete in the present logically supports that conclusion.

Going beyond the psychology of why leaders make inefficient decisions and why their constituents tolerate this less-than-desirable behavior is the need to fix on a strategy to improve policy decisions, which Bazerman addresses in his 2008 paper, “How Can Decision Making Be Improved?”

Particularly in a national election year, voters need to carefully research and ponder their choices because leaving the decisions to special interest groups and policy makers trying to juggle competing messages (especially against the desire to be re-elected) can result in costly errors, notes Bazerman.

And these errors will only get more costly “as more people are tasked with making decisions that are likely to suffer from bias due to: too much information, time pressure, simultaneous decisions being made and other constraints,” he says.

Drawing on previous research, Bazerman explores the notion that decisions are made according to one of two systems of cognitive function. System 1 is intuitive – fast, automatic, effortless, implicit and emotion. System 2 refers to reasoning and is slower, conscious, effortful, explicit and logical.

Ideally, more decisions need to move from the realm of System 1 to System 2, but that often goes against the grain of time pressures, such as those now being faced by Congress being tossed the gauntlet of arriving at an energy bill in the next 14 days.

Allowing much more time for decisions and creating linear models, says Bazerman, can avoid many of the bias pitfalls. Short of that, however, there are other tests that policy makers can be urged to employ to help them reach better decisions. Specifically, Bazerman and colleagues suggest such approaches as taking an outsider’s perspective, considering the opposite of whatever decision he or she is about to make, and leveraging System 2 thinking to reduce System 1 errors.

Observing the special interests at work and understanding a psychological framework of how decisions are made can provide voters insight into what happens over the next two weeks on Capitol Hill related to energy policy.

Voters can also develop a deeper appreciation how conscientious efforts to understand the issues, especially the tradeoffs implicit in meeting short-term needs at the expense of long-term harms, can enhance the quality of interaction with their political representatives at city, state and national levels.

Bazerman concludes that policy makers are highly receptive and voters stand to gain from their own involvement and use of reasoning in the conduct of the political process.

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