Tag: behavioral economics

The FCC Should Not Regulate the Internet

The FCC moves forward with a proposal to regulate Internet service today. It’s a bad idea.

The one thing that pleases me about the ongoing debate over Internet regulation is the durability of Tim Lee’s November, 2008 Cato Policy Analysis, “The Durable Internet: Preserving Network Neutrality without Regulation.” My introduction of it is a good synopsis.

The arguments against government regulation in the name of “net neutrality” have not changed: A good engineering principle is not made better if dogmatized and given to lawyers and bureaucrats to enforce as law. The FCC and its regulatory regime are almost sure to be captured by major ISPs and turned to their benefit, used to suppress competition and blunt innovation.

A premise of net neutrality regulation—and much other regulation—is that consumers can’t be relied on to defend their own interests. Taking that premise, which I don’t, it follows that regulators must step in. But that syllogism skips over an additional premise: that regulators can do a better job.

The Istituto Bruno Leoni (Italy) recently published a terrific paper by Slavisa Tasic (a former Cato intern) that applies the insights of behavioral economics to regulators. Academics have typically used behavioral economics to illustrate the fallibility of market actors, but Tasic turns the tables. The paper is called “Are Regulators Rational?”, and it examines the cognitive biases that are likely to produce flawed decision-making on the part of regulators.

Yes, it’s tit-for-tat to the attack on markets implicit in behavioral economics, but it’s a sound and fair paper that opens new insights onto regulation. This is a good time to do that. Too many take it as an article of faith that the FCC will do better than consumers at protecting consumers’ interests.

This is also a good time to remember that the FCC is our national censor. The U.S. government’s censorious reaction to l’affaire WikiLeaks should serve as counsel to people who would subject Internet service providers to even greater federal regulation. Regulated ISPs will be more compliant with government speech controls.

It’s a point worth emphasizing: Regulated ISPs will be more compliant with government speech controls.

For these reasons, in addition to the ones that have come before, federal regulation of the Internet is a bad idea.

Groopman on How Behavioral Economics Undermines the Case for Central Planning

In The New York Review of Books, oncologist and author Jerome Groopman delivers a stunning rebuke to those in the Obama administration (read: OMB director Peter Orszag) who think the federal government can improve health care quality by telling doctors how to practice medicine:

in the Senate health care bill…Doctors and hospitals that follow “best practices,” as defined by government-approved standards, are to receive more money and favorable public assessments. Those who deviate from federal standards would suffer financial loss and would be designated as providers of poor care…

Over the past decade, federal “choice architects”—i.e., doctors and other experts acting for the government and making use of research on comparative effectiveness—have repeatedly identified “best practices,” only to have them shown to be ineffective or even deleterious.

For example, Medicare specified that it was a “best practice” to tightly control blood sugar levels in critically ill patients in intensive care. That measure of quality was not only shown to be wrong but resulted in a higher likelihood of death when compared to measures allowing a more flexible treatment and higher blood sugar. Similarly, government officials directed that normal blood sugar levels should be maintained in ambulatory diabetics with cardiovascular disease. Studies in Canada and the United States showed that this “best practice” was misconceived. There were more deaths when doctors obeyed this rule than when patients received what the government had designated as subpar treatment (in which sugar levels were allowed to vary).

That’s just one of many examples Groopman offers of where government planners have gone awry.  He concludes:

Ironically, the failure of experts to recognize when they overreach can be explained by insights from behavioral economics…

The care of patients is complex, and choices about treatments involve difficult tradeoffs. That the uncertainties can be erased by mandates from experts is a misconceived panacea, a “focusing illusion.”

Come to think of it, Groopman makes much the same case as I did in my article, “Pay-for-Performance: Is Medicare a Good Candidate?” (Yale J. Health P. Law & Ethics, Vol. 7, issue 1: Winter 2007): evidence-based medicine is essential, but variation in disease burden and patient preferences (read: values) makes it impossible for central planners to define quality accurately.

Read the whole thing.