Regulation in the Behavioral Era

Abstract

Administrative agencies have long proceeded on the assumption that individuals respond to regulations in ways that are consistent with traditional rational actor theory, but that is beginning to change. Agencies are now relying on behavioral economics to develop regulations that account for responses that depart from common sense and common wisdom, reflecting predictable cognitive anomalies. Furthermore, political officials have now called for behavioral economics to play an explicit role in White House review of agency regulations. This is a significant development for the regulatory process, yet our understanding of how behavioral insights should alter regulatory analysis is incomplete. To account for behavioral anomalies, regulators will need to draw on behavioral and social science insights beyond behavioral economics, and they will need an analytic framework to ensure that regulatory decisions reflect a comprehensive examination of the numerous, seemingly haphazard behavioral insights. Although behavioral research has demonstrated the limits of rational action, it does not provide a framework for considering extra-rational action. Nor have legal scholars developed such a framework, despite excellent theoretical work in the area. In this Article, we take an initial step. We provide a framework to facilitate agency consideration of extra-rational action and extend that framework to include a lesson from behavioral research that academics have noted but not adequately explored: that individuals are concerned with social outcomes (e.g., social status or inclusion) as well as monetary outcomes (e.g., wealth) and that they seek to maximize utility in both rational and extra-rational ways. After sketching our framework, we offer concrete applications in the energy use context. Our framework does not resolve all issues that may arise in the behavioral era, but it provides a means to move forward

More than just a tweet: The unconscious impact of forming parasocial relationships through social media.

“…There are times in life when what our conscious (or more deliberative) minds see as the logical and “right” way to think conflicts with the direction in which our more automatic cognitions push us. This conflict can lead to discrepancies between what we believe we are influenced by and what we actually are influenced by when forming attitudes (Ariely, 2009; Vandenbergh, Carrico, & Bressman, 2011). For example, we might believe that our attitudes about someone as important as the president of the United States should be based on deliberate and careful evaluations of his policy and disposition, but it could instead be the case that a bond formed with him due to his social media use could actually be affecting our attitudes.…”

Debiasing regulators

“…Arbitrariness review, in its entirety, is in fact rooted in cost–benefit logic: its prohibition of arbitrary and capricious behavior can be interpreted as a demand for administrators to provide evidence––taking account of all relevant variables––that their decisions are on balance more beneficial than costly, more productive than ruinous (Kuran and Sunstein, 1999: 758). Cost–benefit analysis has been recognized to be a useful debiasing technique in making risk judgments (Brest, 2013: 486) and counteracting availability heuristics and informational cascades, which divert decision makers’ attention from the questions that should be answered (Kuran and Sunstein, 1999), such as the actual consequences of competing approaches, and which are often ignored due to the influence of emotions (Vandenbergh et al, 2011). Cost–benefit thinking, which pervades hard look’s prescription for rational behavior, should help prevent agency decisions being driven by public hysteria or unfounded alarmism; indeed, ‘hysteria’ that endures a searching ex ante hard look investigation by officials themselves is likely one that is rational and appropriate (Sunstein, 2000).…”

Behavioral instruments in renewable energy and the role of big data: A policy perspective

“…In the environmental and energy policy domain, policymakers have struggled to motivate citizens to take action against climate change, in this light, the use of behavioral incentives based on data has become a prominent mechanism for addressing this challenge. Research has increasingly advocated the use of behavioral interventions in designing climate policies (Allcott and Mullainathan, 2010;Vandenbergh et al, 2011;Truelove et al, 2014). In fact, some of the longstanding puzzles in environmental policy can be explained by looking at the behavioral biases driving limited output.…”