Wednesday, March 11, 2009

Putting Obama on the Couch: Time for Therapy

Sounds like some administration has gotten stuck:

Putting Obama on the Couch - Capital Commerce (
The White House, fatigued if not overwhelmed by the horrific economic crisis, may be suffering from a number of "cognitive biases" as identified by the burgeoning field of behavioral economics. This approach looks at the various flawed ways humans make choices in the real world vs. the "econ" world where supposedly we're all cool, calculating "rational agents." (Such analysis helps explain irrationalities like asset bubbles and the success of the film Paul Blart, Mall Cop.)

The irony here is that one reason econ wonks -- and columnist David Brooks -- have been so infatuated with the president's policy team is that it seemed fully aware of this intellectual revolution. Key advisers, such as Austan Goolsbee and Cass Sunstein, are from the University of Chicago, a hotbed of behavioral research, as is the president himself. How ironic, then, that Team Obama may have fallen victim to several psych-economic pitfalls. Decide for yourself:

1) Anchoring Bias -- relying too heavily on past choices or events when making a decision. Stock analysts do this, for instance, when they stick too closely to their initial earnings forecasts or price targets. In Team Obama's case, they've pretty much hewed to their original campaign agenda -- healthcare reform, green technology, cap-and-trade -- even though the cracking global economy should have created a sense of urgency around fixing the banking system and creating real stimulus focused on keeping and creating jobs in 2009 and 2010. But as White House Chief of Staff Rahm Emanuel put it, "Never allow a crisis to go to waste."

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