Organizations and Markets

Department of Irony, Cass Sunstein Edition

27 January 2009 at 2:07 pm Peter G. Klein 1 comment

| Peter Klein |

Harvard’s Cass Sunstein has been tapped by Obama to head the Federal Office of Information and Regulatory Affairs (to be “regulation czar,” in the vernacular). One of his main tasks, presumably, will be to sell the new financial-market and related regulations accompanying the “stimulus” bill. I hope Sunstein will re-read his recent working paper with Richard Zeckhauser, “Overreaction to Fearsome Risks”:

Fearsome risks are those that stimulate strong emotional responses. Such risks, which usually involve high consequences, tend to have low probabilities, since life today is no longer nasty, brutish and short. In the face of a low-probability fearsome risk, people often exaggerate the benefits of preventive, risk-reducing, or ameliorative measures. In both personal life and politics, the result is damaging overreactions to risks. We offer evidence for the phenomenon of probability neglect, failing to distinguish between high and low-probability risks. Action bias is a likely result.

Cass, will you please explain “action bias” to the President and Congresssional leaders before they completely restructure the US economy in response to the current economic downturn?

Entry filed under: - Klein -, Bailout / Financial Crisis, Public Policy / Political Economy.