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Which Eggheads Should Run Washington, D.C.?

Five years after the financial crash, psychologists are still asking economists to hand over the keys.
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Barack Obama wears only blue suits or gray suits.

This fact, reported in a 2012 Vanity Fair profile, speaks volumes about the president’s taste—not in clothes but in academic research. “I’m trying to pare down decisions,” he told writer Michael Lewis last October. Anyone familiar with the psychological literature (or the TED talks of Malcolm Gladwell) probably recognized that Obama was invoking the concept of “decision fatigue.” The idea, borne out by a number of experiments, is that the more decisions we make, the poorer a job we do.

Obama’s affinity for behavioral science famously extends beyond his closet. Among media outlets that traffic in Big Ideas (this magazine included), this affinity has been a favorite theme of his presidency: from his much-remarked-upon early appointment of Cass Sunstein, the co-author of the best- selling behavioral-economics primer Nudge, to oversee all federal regulations as head of the White House Office of Information and Regulatory Affairs; to the behavioral “nudges” embedded in the 2009 stimulus bill; to the creation of an entire new agency, the Consumer Financial Protection Bureau, whose intellectual foundations include a central insight of behavioral economics—that consumers make predictable and systematic errors in their decisions, particularly financial ones.

As David Brooks predicted years ago, the 2008 financial crisis amounted to a “coming out party” for behavioral thinkers looking to influence public policy.

As the New York Times columnist David Brooks predicted years ago, the 2008 financial crisis amounted to a “coming out party” for behavioral thinkers looking to influence public policy. (“At least these folks have plausible explanations for why so many people could have been so gigantically wrong about the risks they were taking,” Brooks wrote in a dig against traditional economists.) And as the above list shows, behavioral wonks have indeed gotten a solid foot in the door in the capital. But they want more than that. Watching the small corps of newly minted Washington veterans with backgrounds in psychology, it's clear that their goal is now to secure a more enduring place at the policymaking table—one that can outlast their most famous patron’s tenure in the White House.

Consider the recent release of The Behavioral Foundations of Public Policy, a doorstop of a volume that has been received with surprising fanfare, for an academic tome. Edited by Princeton University psychology and public-affairs professor Eldar Shafir, the book is a collection of more than two dozen articles on behavioral approaches to policymaking. They cover such disparate topics as overeating, the problems inherent in relying on eyewitness testimony during criminal trials, and the ways in which scarcity affects individuals’ decisionmaking. Other books have covered specific subjects from a behavioral angle, but this is the first to take a truly comprehensive, psychology-based approach to public policy. It’s a hefty “we have arrived” notice intended for policymakers at every level.

It helps that Shafir has come to know this audience fairly well. An Israeli with close-cropped hair, he is one of several psychologists who over the past five years has become a creature not only of academia, but of Washington. As an adviser to the Treasury Department and a member of the President’s Advisory Council on Financial Capability, he's managed to get a valuable feel for the folkways of the capital. He's found, for instance, that it's more fruitful to introduce new ideas to the middle-level employees who will be running their departments years from now, as opposed to the folks currently at the top. “The generation that controls policy is a little too old to have gone through the behavioral revolution,” he says.

It’s probably Sunstein, however, who has been the most visible and well-connected champion of that revolution. Ever since his departure from the administration in August, the prolific legal scholar has been writing copiously to shore up the edifice of behaviorally informed policymaking—in The New Republic, The New York Review of Books, and in his own new book. Simpler: The Future of Government covers many of the issues given the academic treatment in Shafir’s book, but from a government-insider perspective. In the book’s introduction, Sunstein draws a direct line from the seminal psychology research of Daniel Kahneman, Shafir, and others to the highest office in the land. His goal at the White House, he writes, was to promote “simple, low-cost, freedom-preserving approaches, drawing directly from behavioral economics, that promise to save money, to improve people’s health, and to lengthen their lives.”

But for behavioral science—as for a bright young politician swept into office—there’s a downside to accruing a Washington track record. One of the key behavioral gambits tucked into the 2009 stimulus bill was something called the Making Work Pay Tax Credit, designed to slowly drip small amounts of money into Americans’ bank accounts rather than disburse cash to them in a lump sum. Inspired by behavioral theories about the way people engage in “mental accounting,” the experimental credit was meant to nudge consumers toward spending rather than saving their government rebates. Later analysis by economists suggested it didn’t work. And Sunstein’s tenure as the Obama administration’s “regulation czar” ultimately left both progressives and conservatives dissatisfied.

Traditional economists, meanwhile, are not exactly eager to hand over the keys to the policymaking machine. Andrew Caplin, an economist at New York University whose work frequently dips into psychology, acknowledges that an overreliance on the neoclassical economic assumption that humans are rational actors can lead to “dopey mistakes.” But he simply doesn’t think psychologists are ready to take on a leading policymaking role. “They can’t do it,” he says. “They’re not systematic enough as thinkers.

“It’s not that they’re wrong," he adds. "It’s that they’re hubristic at this point, and they’ve entered areas that they clearly don’t understand, such as long-run policies on housing, on assets, and on liabilities of households.”

For his part, Shafir displays little of the hubris his discipline has been accused of, and he is just as forthright as Caplin about the current limits on the behavioral revolution in Washington. Psychologists “are not typically trained to think in terms of macro phenomena, and equilibria, and other issues that economists do well, and that are important for policy,” he writes in an email. “Psychology cannot and should not replace them. The ultimate victory would be policymaking deeply informed by both disciplines, and possibly others as well.” Given how entrenched economists are in Washington, even that victory will probably require more than a nudge.