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Colin F. Camerer
1200 E California Blvd
MC 228-77
Pasadena, CA 91125
(626) 395-4054

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POLICY APPLICATIONS
Since economic theories often have very clear implications for "welfare" (making society as a whole better off), economic analysis has been important in many aspects of guiding government policy. While most of my research tries to document basic facts about how people behave, and suggest theories which organize those facts, sometimes the facts and theories suggest policy ideas or brush up against policy debates. In 1999 I coauthored a National Research Council book with a dozen other people, Pathological Gambling (published by the National Academy of Sciences Press) about the impact of the explosion of gambling opportunities in the US on individuals, families, and communities. About 2% of people who gamble lose control over their gambling in ways that harm their personal and workplace relationships, and sometimes leads to white-collar crime. The main "finding" in our NRC book was that so little is known about pathological gambling that it is hard to guess what impact the rapid growth of gambling opportunities will have. (The economic analyses which suggest gambling is good for a community are also usually badly flawed—they don't add up all the "externalities" and also take a local view rather than a national or international one.) Internet gambling is particularly ominous because of the difficulties of monitoring teenage gambling, and of finding the proper legal jurisdiction for cyber-casinos which are located "offshore" (many are in the Caribbean, where regulation and legal reporting is casual) but which are accessed by people around the world. There is also a modest, but disturbing rise in pathological gambling among women, particularly in states where "video poker" and other sorts of private, nonsports gambling are increasingly common. (Women tend to gamble less on cards, dice and other games of "skill" compared to slot machines and lotteries.)

I have also attended meetings of the National Institute of Drug Abuse (NIDA) and the National Institute of Alcoholism and Alcohol Abuse (NIAAA), branches of the National Institute of Health, on how behavioral economics can inform the "disease" model of addiction, which guides much public policy toward drugs and alcohol. To an economist, it is surprising that drug policy is largely shaped by a consortium of physicians (who think it is important to investigate the biological bases of addiction—I agree) and other interest groups, like the military (which inherited a lot of drug-interdiction efforts after the end of the Cold War), and the prison guards' lobby. My personal view is that there is too much spending on restricting supply (particularly for highly addictive drugs like heroin and cocaine) and much too little on basic research and rehabilitation. Prisons are expensive and rehab is cheap. While most rehabilitation leads to only modest rates of success at present (most addicts "relapse"), advances in genetics and other basic research are very promising for improving treatments dramatically—so the science is worth doing a lot more of, and the economic payoff will probably be huge.

A constant question policymakers ask is whether the limits on rationality and willpower we discover in behavioral economics justify policies which are "paternalistic"—that is, which seek to limit the choices people have on the grounds that people won't always choose what is good for them. As a Chicago-trained economist, I am not eager to see much broad paternalism without doing more research. At the same time, paternalism is part of the fabric of policy in many ongoing ways—Social Security is a kind of "forced saving", minors are prohibited (at least in law) from buying cigarettes and alcohol, people with mental illness have restricted choices, many transfers to the poor are earmarked for certain spending categories (housing, food stamps) rather than given as cash, and so forth. In our Penn Law Review paper, Regulation for conservatives: Behavioral economics and the case for "asymmetric paternalism'', Sam Issacharoff, George Loewenstein, Ted O'Donoghue, Mathew Rabin and I argued for a middle ground you might call "conservative paternalism" (we called it "asymmetric paternalism" in our paper). Conservative paternalism is a set of policies which may help a few people who make judgment mistakes a lot, and impose very little harm on people who behave rationally. Examples include informed consent, disclosing information which profit-motivated firms may not disclose voluntarily (such as nutritional content of food or drug efficacy), mandatory waiting periods (which exist for marriage and divorce), and "cooling-off" laws which allow consumers to break contracts for purchase of certain consumer goods.

The Boston Federal Reserve Bank devoted its annual conference in 2003 to behavioral economics, see here.

Division of the Humanities and Social Sciences
Mail Code 228-77
California Institute of Technology
Pasadena, California 91125

Office: Room 101
Phone: (626) 395-4054
Fax: (626) 432-1726
email icon  E-mail: camerer@hss.caltech.edu
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