The Behavioral Economics of Congress

With health care reform seemingly running aground in the Senate, there has been some interesting discussion lately about the many institutional problems facing a genuinely progressive agenda, or even an earnest non-ideological attempt to address some of our absolutely serious problems.  Most commentary has focused on the Senate and its (rather bizarre at times) institutional restraints on reform, but there is clearly a lack of resolve on the level of individual congressmen to stand up and advocate for policies that require uncomfortable measures like higher taxes or a too-rapid shift from the status quo.  Whether or not the American public is capable of accepting some pain for more gain, it’s clearly not something our elected officials are eager to test.

Which is why I found this working paper (here’s a link to the PDF) from Harvard Business School so interesting.  It argues that much of legislative impotency can be attributed to loss aversion, which is the idea in behavioral economics that we fear potential losses far more than we desire equivalent gains.  Thinking about higher taxes or decreased services as losses, this would seem to explain the behavior of Congress rather well.  A relatively modest idea like capping the deductability of charitable donations for the wealthiest income brackets (at a level equal to that enjoyed by lower brackets, mind you) is a political non-starter, even when doing so could help pay for universal health insurance.

To combat this problem, the researchers propose “policy bundling,” in which bills that would impose political costs are bundled with other bills that shirk those costs to lessen the effects of loss aversion.  In the example offered by the paper, a program that will cut jobs to protect wildlife is bundled with a similar program that allows logging (or whatever) to continue in a separate location, providing a net job gain.  The idea, I suppose, is that the second program was going to get passed anyway (it certainly would in the Senate), whereas the first one would have a much more difficult time on its own.  The authors supported their idea by performing a behavioral experiment, with subjects acting as legislators, that both confirmed the theory of loss aversion and supported the idea that a particular type of policy bundling can alleviate it.

I suppose the direct application to initiatives like health-care or Waxman-Markey are less clear, as those bills are already thick bundles of many individual components.  Still, Congress’s relative inability to act responsibly on large measures is outweighed only by its complete inability to do so on smaller ones, so I still see a lot of promise in this approach.  And, even if the policy bundling idea bears no fruit, I’m completely behind the application of behavioral economics to congressional action.  There are many institutional problems, to be sure, but let’s not forget that lawmakers are flawed human beings, just like the rest of us.

Update:  Whoops.  Link to the pdf now active.  Read it!

Upsate #2:  Much bigger whoops.  The original link was to the wrong Harvard study.  Links should all be fixed now.  (Here was what I accidentally linked to, by the way, which is certainly an interesting paper in its own right.)