Smart regulation: if regulators studied psychology

by Dianne Saxe on September 21, 2012

How would environmental regulation be different if our regulators were up to date on current research in psychology and neuroscience? A leading American legal scholar and member of the Obama Administration, Cass Sunstein, published a detailed analysis in the University of Chicago Law Review.

His bottom line?  Small, inexpensive policy initiatives can have large and highly beneficial effects, especially through disclosure requirements, default rules, and simplification. And it’s essential to look beyond purely material incentives:

…while  material incentives (including price and anticipated health effects)  greatly matter, outcomes are independently influenced by (1) the  social environment and (2) prevailing social norms.

It is an academic paper, and can be hard slogging, but the conclusions are worth attention:

“While disclosure of information is an important regulatory tool, steps must be taken to ensure that disclosure will be not merely technically accurate but also meaningful and helpful. Such steps require careful attention to how people process and use information.

It is important to distinguish between summary disclosure, typically provided at the point of purchase, and full disclosure, typically provided on the Internet. Summary disclosure should be clear, simple, and salient, and it should emphasize factors that actually matter to people (such as the annual dollar value of fuel economy or energy efficient choices).

Full disclosure should provide information that can be used in multiple ways, thus improving the operation of markets. Often the most important uses come from the private sector, which may promote comparison shopping among multiple options. Some noteworthy recent efforts allow people to see the nature and effects of their own past choices and to understand the likely effects of different choices in the future. In all cases, disclosure is most useful if it informs people of what, precisely, they might do in order to avoid significant risks or obtain significant benefits.

Default rules can greatly affect social outcomes, and in some circumstances, sensible defaults can serve as a complement or alternative to mandates and bans. One of the advantages of wellchosen default rules is that they can simplify and ease choices—for example, by producing automatic enrollment in programs that are generally beneficial while also allowing people to opt out. A potential problem is that those who design default rules may not know which rule is best and one size may not fit all. At least when the relevant group is diverse and the domain is familiar, active choosing is likely to be preferable to default rules.

Because complexity can often have undesirable or unintended side effects—including high costs, noncompliance with law, and reduced participation in useful programs—simplification may well help to promote regulatory goals. Indeed, simplification can often have surprisingly large effects. Reduced paperwork and form-filling burdens (as, for example, through fewer questions, use of skip patterns, electronic filing, and prepopulation) can produce significant benefits. It may also be desirable to ease participation in both private and public programs by increasing convenience and by giving people clearer signals about what, exactly, they are required to do. People are far more likely to respond when certain facts, risks, or possibilities are salient; effective warnings take account of this fact.

Finally, regulation can work in concert with social norms, helping to promote agreed-upon public goals and to increase compliance with legal requirements. Public–private partnerships, enlisting the initiative and the creativity of the private sector, can be especially helpful in this regard.”

 

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