Friends of the Behavioral Economics Club, this week we present the paper “Future Imperfect: Behavioral Economics and Government Paternalism” by Le Grand, J. (2018), in which the author reflects about the paternalists decisions of the government and their relationship with behavioral economics. 

Numerous economists, psychologists, and other experts have used the growing number of empirical research in behavioral economics to understand paternalistic government policies.

The main argument is that people make mistakes in judgment when it comes to their goals; consequently, governments intervene in politics to correct these errors and, therefore, help people to achieve their proposed ends.

The interventions would exist in a wide variety of areas: taxes, licenses, the prohibition of potentially harmful activities for health, subsidies, and so on.

However, many other experts have questioned these arguments and the government policies associated with them, commenting that they unjustifiably and arbitrarily offer privileges to a particular set of preferences. In this article, the author reflects about this idea.

He first explains that there are two types of paternalism: the one related to the means and the one related to the ends. The idea is that individuals have objectives, goals, values, which are part of our life plan, among which we choose, looking for ways to achieve them.

Paternalism related to ends occurs when a government agency considers that some individuals have not adequately considered their own ends or objectives and, therefore, replaces them according to its own conception of what is good, trying to alter the behaviors of the individuals that are relevant for its achievement.

The paternalism related to the means occurs when the agency accepts the ends of the individuals, that is, it accepts their conception of life and the objectives they pursue, but observes that individuals make mistakes when trying to achieve these objectives and decides to intervene to correct them.

How can we relate the challenges of this issue to behavioral economics?

Experts who defend this position of the government comment that it is a way of adjusting decision-making to the neoclassical axioms of rationality.

To correctly understand this whole idea, the author proposes an example.

When 18-year-old Jane goes to buy a pack of cigarettes, the agency considers that if she does this, she will be at high risk for lung cancer and/or other smoking-related diseases in the future. Furthermore, the agency judges that this will reduce the expected value of her future utility and welfare. Therefore, the agency considers that it is justified to try to interfere in some way with Jane buying those cigarettes.

The main objection that occurs to all of us is that this intervention would interfere with Jane’s autonomy, so it could only be tolerated if the harms to Jane’s autonomy were minimized as much as possible with the methods chosen for the intervention.

In addition to damaging the autonomy of the individual, the agency would also be questioning her decision-making process. 

Returning to Jane’s example: no one on the planet is unaware that smoking is a health risk, so it is reasonable to think that she knows it too and has taken this knowledge into account in some way in the judgment that led her to make her decision . So what is the agency’s basis for deciding that Jane’s judgment should be superseded by their own judgment?

Well, there are some reasons why the agency might consider this idea. First, they may believe that Jane is making her decision based on misinformation. In this case, the agency’s responsibility would be to provide her with correct information or to ensure that she has access to it.

Later, the agency might think that the decision is wrong because in her judgment, Jane is using the wrong discount rate in her expected value calculations. That is, when Jane evaluates the contributions that current and future actions make to her lifetime utility, she considers present actions more important than future actions, contrary to what the agency believes.

The reason Jane acts like this is likely due to her assessment of the uncertainties involved in any assessment of the future. If the government agency has a different assessment of this uncertainty, their role would be to provide Jane with this information and then allow her to make her decision. If the agency were to hinder or impede Jane’s activities due to lack of information about the risks, it would be unjustifiably paternalizing.

There is also the idea that the agency is defending the benefits of the Jane of the future while Jane is defending the benefits of the Jane of the present.

As we can see, we could reflect long and hard on this topic, since human decision-making is a complex process, like everything that derives from human behavior.

This article accepts that government interventions may favor certain preferences, but not arbitrarily. Furthermore, it could be justified by the desire of the individual’s governments to maximize his life well. The idea is that the future will never be perfect, but with proper government intervention it can be improved.

If you want to know more about Behavioral Economics and how to apply it to human behavior, take a look to our Certificate in Behavioral Economics, a formative program, in English or Spanish, 100% online and certified by Heritage University (USA). Now, with discounts for members of this club.

Friends of the Behavioral Economics Club, this week we present the paper “Small business response to regulation: incorporating a behavioral perspective” by Shapiro, S. and Borie-Holtz, D. (2020), in which authors study, from the behavioral economics’ point of view, what is the opinion of the small businesses regarding the government’s regulations in the United States context.

We already know that behavioral economics can be applied to any area of our lives.

Because of this discipline’s rising, we see more and more analysis each time according to its perspective, public policy issues included.

Therefore, studies have been carried out around the world at different levels of government to find out how to incorporate the concept and theories of behavioral economics into political decisions.

Nevertheless, there is a crucial group for whom not enough resources have been allocated. We refer to those who must comply, personally, with the regulations of public policies: small businesses, but also schools or hospitals, among others.

An important point is the arguments authors use to show us how important it is to study how companies perceive government regulations.

Former, these insights can affect the decision about whether to comply with regulations or not. And if regulations are not followed, the overall target benefits will not be achieved.

Latter, perceptions about regulations are important because they reflect people’s opinions about government in general. Why? Because for those who oversee small businesses, these regulations are the main contact with public administrations.

Due to the lack of research of this area from behavioral economics, authors explore in this work how the perception of the different regulations proposed by the government affect the attitudes towards them that these small businesses have.

In addition, authors wanted to shed light in this context to improve how these companies react to regulations, so that they are more effective, and the polarization that characterizes how they are perceived is reduced.

In order to do this, an online survey was carried out with a total of 322 small business owners as participants, and those who wanted were also interviewed in person to collect more specific data.

Before compiling all the information obtained from the study, authors considered several ideas as possible.

For instance, they believed that business owners consider paperwork requirements an arduous task, and a disproportionate burden due to the number of reports and records that must be kept up to date.

Authors considered that these pejorative connotations could be due to negative experiences in the past. Even listening to acquaintances or friends that have passed through them can affect.

After conducting the surveys and interviews, interesting results were obtained.

Indeed, small businesses owners are concerned with keeping records up to date and completing the necessary paperwork for government regulations. In both surveys and interviews it was a recurring topic. Half of the participants reported dedicating more than one hour a week to this matter.

One of the reasons this seems so arduous for them is because, while doing it, they remember the frustrations associated. Moreover, exists the wagon effect. This means the opinion of those close to you is very important, and if they report having suffered negative experiences, you will remember this data very easily.

The wagon effect is also seen in the effects of opinions found on the internet. There, people can say if they agree or disagree with something they are interested in. They can complain about different matters if they are angry, too.

There is also the idea of anchoring. That is to say, we are prone to collect little data before creating a judgement and, besides, we remember a dramatic incident more easily than hundreds of routine events, due to the impression it causes to us.

Among other biases mentioned, the self-service bias appears. This would be the tendency to attribute positive behaviors and actions to oneself while blaming other people for factors that lead to failure.

How do we relate this to the small business matter? When this kind of business fails, the owner can attribute the failure to certain causes, usually external. Due to regulations and negative opinions towards them, it is very possible that blame is projected onto the public administration.

The conclusion is that a vicious circle is produced, in which bad experiences with regulation are reinforced by anti-regulatory gossip on the internet and among acquaintances. All this shapes how future experiences are perceived.

A limitation of this study is that it was carried out with small companies, in which the owner is the one that deals with this type of procedures. This is not the same in larger businesses, so research regarding this should be carried out.

With so much money invested in regulatory costs and benefits, this area is very important for future studies.

In a nutshell, authors consider that, a better understanding of why small businesses react to regulation in the way they do, could improve relations between them and government authorities, creating a very positive environment that must begin to be seen as necessary.

If you want to know more about Behavioral Economics and how to apply it to human behavior, take a look to our Certificate in Behavioral Economics, a formative program, in English or Spanish, 100% online and certified by Heritage University (USA). Now, with discounts for members of this club.

Friends of the Behavioral Economics Club, this week we present the paper “Tell me who you vote for, and I’ll tell you who you are? The associations of Political Orientation with Personality and Prosocial Behavior and the Plausibility of Evolutionary Approaches” by Grünhage, T. and Reuter, M. (2021) in which authors revise the existence of significant associations between political orientation, personality and prosocial behavior, to check if, the idea that political orientation and personality are influenced by each other, is supported.

Politics has become more important for the whole world these days. For instance, due to the pandemic or political transgressive and innovative programs that not everybody likes.

The differences between one and other parties are more evident each time, and this produces a polarization of them and of the people that give them their support.

That is why political psychology has been paying attention to this topic the last few months. This area of psychology studies political communication, intergroup-relations in and out the parties, but besides, it also dedicates its time and efforts to discover whether a person’s political orientation or “ideology” can be treated as a trait with potential explanatory power for his/her behavior in and outside the political sphere.

Studies focused on this idea are useful due to two reasons.

Former, because people’s political orientation could provide psychologists with hints to the person’s personality structure and behavioral inclinations.

Latter, this would be a way of enhance the comprehensibility of political phenomena, ranging from voting intentions to ideological consistency of individuals.

Negative associations between conservative political orientations and Big Five traits Openness and Agreeableness have been existing so far. As well as a positive relationship between being conservative and Conscientiousness.

Following this model (Big Five), Agreeableness would predict support for social justice causes and redistributive policies predominantly. The same would happen with measures focused on promoting culture. All of this would be related to liberal political orientation.

In a cited study in this paper, it is explained how authors showed after an experiment that the associations between certain personality traits and political orientations are only valid among politically engaged individuals.

And, moreover, there would be a higher level of compromise between people that tend to have a more conservative ideology.

As a resume, research so far indicates that the Big Five model is a good tool to analyze political orientation and its relationship with personality.

However, it must be mentioned that more studies should be done in order to delve into these aspects, because the fact that basic personality traits and political ideology have a relationship is a reality.

Regarding the relationship between political ideology and prosocial behavior, in mentioned studies in this paper, interesting information was found. For instance, and as the common sense says to us, a tendency to get along with people that have our same ideology is observed.

On the other hand, it was shown that people with competitive or individualist social value orientations are politically more conservative than people endorsing a prosocial orientation.

Other interesting data is that higher assertiveness and dominance is observed in people with conservative ideologies. Moreover, they would be less compassionate.

On the contrary, liberal people would be associated with higher cooperation between them and with others; besides, they would be kinder than conservatives.

In a nutshell, revised literature in this article suggests that people defined and thoroughly assessed right vs. left or conservative vs. liberal policies, do differ in their psychological profiles with respect to personality and interpersonal behavioral dispositions.

Presumably, this is because a proper definition of conservative and liberal implicates a series of very rooted differences inside the groups, that end affecting individual’s personalities.

Knowing the peculiarities of conservatives and liberals has significant relevance in the actual political realm. This would enhance traceability of political decisions.

Plus, it may prove fruitful in the qualification of theories of political science, such as extremism, populism, or even terrorism, bearing in mind that psychological peculiarities associated to an ideology are also related to the individual.

As usual, authors mention the need of delve into this topic, because it is a promising field that could apply its findings in numerous areas, not just politics.

If you want to know more about Behavioral Economics and how to apply it to human behavior, take a look to our Certificate in Behavioral Economics, a formative program, in English or Spanish, 100% online and certified by Heritage University (USA). Now, with discounts for members of this club.

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