Matt Ridley discusses a paper that uses “behavioral economics” to assess regulators. The paper is by Slavisa Tasic, and I believe that it can be found here. Tasic writes,
In the context of political economy, overconfidence takes the form of the contention of regulators that they fully understand the problems they face and are able to design optimal solutions for them. One type of overconfidence particularly relevant to the problems of market economy is what the psychologists Rozenblit and Keil named the illusion of explanatory depth (IOED). Rozenbilt and Keil (2002) showed, in a series of experiments, that people systematically overestimate their understanding of complex phenomena. We falsely believe that we understand the causes, effects and inner mechanics of different things, events or processes much better than we actually do. Participants in the experiments testing for this illusion would consistently report a certain level of understanding of the given phenomena, before hearing an expert explanation of the same. Only after finding out the true explanation would they realize that their understanding was poor.
Read the whole thing. I think that if there is one belief that I have that makes me a skeptic on government intervention, it is the belief that technocrats overestimate their own knowledge and competence.
READER COMMENTS
Michael Keenan
Oct 26 2010 at 11:26pm
I liked Ridley’s article until the last example, in which he compared the bird death toll of the Deepwater Horizon spill to wind turbines and concludes that the differing opprobrium that oil companies and wind companies receive is therefore a mistake. I’m pretty sure that people are concerned about numerous other negative consequences of the very large oil spill, in addition to the dead birds. I doubt that learning that the number of birds killed by the oil spill is relatively insignificant will improve anyone’s opinion of BP very much.
david
Oct 27 2010 at 8:06am
Don’t make the mistake of assuming an intervention-neutral process to flee to; instituting a market is itself a technocratic intervention, with proponents who assert that they understand and can predict what effects it will have.
And theories of freedom are not free; there is no “natural law” to invoke here. The libertarian says “this is my property; your taxing it is theft” – the Marxist says “it was never legitimately yours to begin with. Your keeping it is theft”.
Which is not an argument for or against any institutional design – markets, or not markets, or some mixture. Only this: if you assert that everyone whom you disagree with are merely overestimating their competence, it may be wise to ensure that you are not doing the same about the institutional designs you favor.
Robert Johnson
Oct 27 2010 at 10:10am
Technocracy wouldn’t be such a problem if it was subject to rigorous and objective performance measures. The lack of such measures is probably an insurmountable problem in the near term, unless someone makes some substantial progress in the science of economics.
Dain (Mupetblast)
Oct 27 2010 at 10:13pm
…if you assert that everyone whom you disagree with are merely overestimating their competence, it may be wise to ensure that you are not doing the same about the institutional designs you favor.
I’d counter that suggesting that a free market technocrat (as it were) have as much competence as a regulator is a category error. They don’t harbor the confidence in any specific outcome for which the competence in question would be required.
Oh, and since Slavisa was brought up, here’s an interview I conducted with him earlier this year (scroll down a tad): http://www.cr-alumni.org/videos.html
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