Monday, October 4, 2010

Psychologists needed to help implement policies

In my next life I'm going to be a psychologist. If I can make myself work harder at uni than I did last time, I'll become an academic and start a new branch of the discipline called PPP - public policy psychology.

Why? Because there's such a glaring need for it. The politicians themselves have a reasonable feel for how people think and behave, but much of their advice comes from a profession that believes the principles of human behaviour need only be assumed, not studied empirically.

Assume everyone behaves "rationally" - that we all think like Albert Einstein, store as much memory as IBM's Big Blue and have the willpower of Mahatma Gandhi, that our preferences never change - and your equations will work perfectly.

Is it any wonder government actions are bedevilled by "unintended consequences" and most economists regard intervention in markets as problematic?

Economists tell themselves government regulation fails because of the corruptibility of politicians and public servants. It never occurs to them the root cause may be their own shaky grasp on human motivation.

Economics is in an imperialist phase where economists seek to dominate the bureaucratic advice going to governments. Economists confidently supply solutions to problems outside their field of competence, without themselves or their masters realising it.

Consider, for example, the desire of governments to stamp out price-fixing cartels. The question is, which would be the more effective deterrent: heavy fines or short jail terms?

This is an empirical question, but economists think they already know the answer: increase the size of the fine until, after being multiplied by the numerical probability of being caught, it exceeds the likely benefit from price-fixing.

Then, when the pollies fail to lift fines to the stupendous levels this "expected value" formula dictates, you quietly accuse them of lacking "political will".

The alternative deterrent of a jail term never gets seriously considered. Why not? Because it can't be measured in dollars - unless you do something really lame, like estimating the income chief executives would forgo while in the slammer.

The real deterrence of jail is non-monetary: the shame and stigma suffered by the executive and his family, which would linger long after a sentence of even just a month or two had ended. Can you imagine the indignity suffered by a chief executive's wife in her social set? Imagine the hard time she'd give her husband? Imagine how, after a few executives had been strung up, others would be keen to avoid ruining their lives in this way?

This suggests chokey may be a far more effective deterrent, but it remains an empirical question - one suited to the more empirically oriented discipline of psychology. The false attraction of economics is that, in the absence of empirical evidence, its practitioners happily fall back on pure theory. If I were seeking to establish the sub-discipline of public policy psychology, I'd ransack all its branches looking for policy-relevant findings and collect them in a handbook, before embarking on experiments aimed at filling in the gaps.

Where else might advice from psychologists be superior to that from conventional economists? A paper delivered to the Australian Economic Forum by Ian McAuley, a lecturer on public policy at the University of Canberra, is full of examples.

He notes various instances where people provide public goods voluntarily, by doing voluntary work (Clean Up Australia, Meals on Wheels) or making cash donations. Many public sector workers (doctors, teachers, even econocrats) work for lower pay than they could expect in the private sector.

All of this is of great benefit to the nation (and the taxpayer), and politicians may wish to do more to encourage it. But you need to understand people's (non-monetary) motives. Fail to understand the "psychology of rewards" and you can end up doing more discouraging than encouraging.

Consider next the crazy way otherwise-savvy economists designed the Carbon Pollution Reduction Scheme such that the voluntary efforts of households and even governments to reduce their emissions merely reduced the pressure on big polluters. What on earth did they imagine the punters would think once they twigged?

Thanks to their training, economists are oblivious to the importance of "procedural fairness" - doing things in ways perceived to be fair - whereas psychologists know people care deeply about it. McAuley suggests the failure of motorists to use toll roads in the numbers predicted - even in cases where avoiding them may be more costly in time, fuel and vehicle wear - may be caused by the belief that slapping fees on particular roads is unfair and ought to be censured.

McAuley quotes evidence from the Swiss cantons, where "voluntary compliance" with tax laws - now a big problem in loophole-seeking Australia - is stronger in those cantons where people feel the tax authorities treat them with consideration.

Robert Cialdini, the psychologist famous for his study of the factors that influence us, found that when household energy users were asked to rank their reasons for saving energy they put "because it will save the environment" first, followed by "because it will save me money" and then "because other people are doing it".

But examination of people's actual behaviour gave the example of others top billing. No surprise to psychologists, but explicitly ruled out by "the economic way of thinking".

Economists specialise in studying the behaviour of markets. But economic sociologists know a lot about how markets work - that they're social phenomena, influenced by the informal constraints of social norms as well as the formal constraints of public policy - that economists don't.

Economists are great believers in the efficiency-enhancing effects of competition, except on their own patch. Psychologists and sociologists should stop bewailing the excessive influence of economists on public policy and give the economists a run for our money.