So let me begin with a pet idea: The United States needs a Council of Psychological Advisors. This new body would parallel and complement the Council of Economic Advisors. When economists have the president’s ear, all their whispers concern incentives and self-interest. We need psychologists whispering in his other ear, about the economy, education, healthcare, and more.
On the Economy: Understand the “Irrational.” Where did our financial institutions go wrong? Many accounts focus on greed, fear, and lack of trust. And why did things get so out of hand? Why was there a housing “bubble”? Somehow, “irrational exuberance” (Robert Schiller) or “animal spirits” (John Maynard Keynes) overwhelmed rational calculations of risk and reward. And it isn’t just that irrational optimism, or even blindness to market fundamentals, gets the better of our rational faculties. Rather, as George Soros has pointed out, these psychological phenomena can become part of a feedback loop that actually changes market fundamentals. “Reflexivity,” he calls it. The housing bubble was not the first such phenomenon, nor will it be the last.
Economists offer little that helps us understand why such bubbles occur or how they might be prevented. They also have little to tell us about how to prevent a “downward spiral of negative expectations” that makes fear of an economic downturn self-fulfilling. Economists largely make assumptions about the rationality of human decision-making and proceed from there. Witness Alan Greenspan’s admission after he stepped down as chairman of the Fed that he was mistaken in assuming that markets operate rationally and efficiently. The current crisis makes it clear that ignoring the real psychology of greed, fear, trust, and irrational enthusiasm (or pessimism) can be perilous. Economists offer little that helps us understand why such bubbles occur or how they might be prevented. A Council of Psychological Advisors could help.
On Education: More than Just Carrots and Sticks. One of President Obama’s top priorities is to improve the quality of American education. This will require recruiting and retaining excellent teachers and finding ways to motivate students. How can this worthy goal be achieved? At the moment, we’re pointing in the direction of school choice and competition to produce better schools, higher pay to produce better teachers, big tests to monitor performance, and financial incentives to motivate students. A bunch of carrots and sticks. Will these kinds of measures be enough? Research in psychology suggests not. More important than pay (as long as it is adequate) are working conditions that allow teachers to be flexible, autonomous, and creative in their work with students, and that provide teachers with a sense that they are working in a community that has a common purpose. From this perspective, the regimentation of instruction ushered in by big-test accountability is actually counterproductive. And so is the move, now being tried in pilot projects around the country, to pay students for showing up to class and for getting good grades. A Council of Psychological Advisors could help design environments that encourage students to pursue mastery rather than money and teachers to view their work as a calling.
On Health Care: Understanding Efficacy and Managing Chronic Conditions. Everyone should have health insurance. This is necessary, but not sufficient. The cost of health care must come down. Computerized medical records that produce coordination of care will help bring down costs, but it also isn’t sufficient. We need to help patients (and their doctors) understand how to think about the efficacy and the risks involved in various medical procedures, so that fewer unnecessary, but costly procedures are undertaken. There is plentiful evidence that patients make serious mistakes in thinking about risks and efficacy, and that their doctors make the very same mistakes! Moreover, most medical care in a developed country like the U.S. involves management of chronic diseases (hypertension, heart disease, diabetes, asthma). Managing these conditions effectively demands that patients be partners; they need to make lifestyle changes (eg., diet, smoking, and exercise) that are often difficult to adhere to. A Council of Psychological Advisors can help in designing formats for presenting evidence about the efficacy and risks of various treatments that will reduce misunderstanding and thus reduce unnecessary procedures. And it can help develop interventions that will make patients healthcare partners more effectively.
On the Environment: Do It Because It’s Right Traditional economic incentives like investment tax credits, energy taxes, and pollution credits might help us reduce our environmental footprint, but focusing exclusively on these neglects the extraordinary opportunity to call on citizens to do the right thing because it’s the right thing. Indeed, there is even evidence that incentives can undermine people’s desire to do the right thing. In a Swiss study of citizen-willingness to have a nuclear waste dump located in their communities, researchers found that whereas 50% of citizens agreed (reluctantly) when no incentives were involved, only 25% agreed when substantial incentives were involved. Each of us can take responsibility as citizens to contribute in small ways to solving the big environmental problems we face. A Council of Psychological Advisors can help in crafting appeals to citizens to do their duty.
Moving Beyond GDP. Finally, let us ask the most fundamental question: what is public policy for? We aim to increase collective welfare, but just what does welfare consist in? For the most part, under the sway of economic thinking, our aim has been to make the country more prosperous—to increase per capita GDP. The appeal of this goal is two-fold. First, we assume that if people are richer, they will be freer to choose as individuals the objects and activities that serve their welfare. We (the state and its technocrats) don’t have to choose for them. So wealth serves as a proxy for everything else. And second, GDP can be measured. But like a drunk looking under a lamp post for his car keys, even though he dropped them someplace else (because “that’s where the light is”), it doesn’t help much to pursue what you can measure if what you’re measuring is the wrong thing. It doesn’t help to get better at achieving goals if you’re achieving the wrong goals. Much research in the psychology of well being suggests that some wealth-enhancing policies improve welfare, but others do not. Indeed, some of what it takes to get more prosperous may be counterproductive when it comes to well being. A Council of Psychological Advisors can help here too, in the design of a system of national “psychological accounts” that does a better job of measuring well being than per capita GDP ever could.
Many of us held out the hope that the Obama administration would mark a return to respect for knowledge and expertise. Agencies would be run and staffed not by political cronies, or by people who “just know in their gut” what needs to be done, or by ideologues, but by people who actually have respect for evidence. It would be a shame to bring experts on board in existing agencies, only to have them have to rely on personal intuition rather than knowledge in formulating policies and making decisions that could benefit from psychological expertise. I think President Obama did indeed have exactly this inclination, but to a large degree, politics has gotten in the way. But one can still hope. A Council of Psychological Advisors is long overdue. This would be an excellent time to create one.