Countering the Power of Vested Interests: Advancing Rationality in Public Decision-Making

Stiglitz, Joseph E.

Seemingly Pareto-improving reforms face more opposition than they should. In earlier work, I presented an explanation: voters correctly saw reforms as part of a long-term dynamic game, and they correctly saw how the reform affected outcomes (e.g., by affecting beliefs or coalition formation). Recent advances in behavioral economics derived from insights from sociology emphasize preference endogeneity, noting that beliefs are affected by those of others with whom one identifies and need not be consistent with rationality, as conventionally defined. Thus, individuals may have beliefs about the economic system that differ from those of economists. People may support policies which economists’ analyses suggest are contrary to their interests because they believe these policies advance their interests. Based on previous analyses of the causes of these seeming perversities, I show how economists can modify policy proposals in ways that enhance likelihood of support, e.g., with contingent provisions which are operative in the states of the world that economists know (believe) are unlikely to occur, but which enhance the wellbeing of individuals with such beliefs in those states. Those selling products that are adverse to one’s health have learned how to persuade customers to buy them. Likewise, politicians who are selling policies that are adverse to society’s wellbeing have learned how to market their ideas. Economists will similarly have to learn how to persuade citizens of the desirability of the evidence- and theory-based policies that they advocate.


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Journal of Economic Issues

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February 5, 2019


Originally presented in the 2017 ASSA Conference, January 2017.