Policy overreaction

Moshe Maor*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

89 Scopus citations

Abstract

The literature on policy success and failure does not capture policies that may be too successful, as well as "too much" and/or "too soon" patterns of policy. To bridge this gap, this conceptual article relies on one of the most robust findings in the psychology of judgement, namely that many people are overconfident, prone to place too much faith in their intuitions. Based on this premise, the analytical framework advanced here revolves around two key dimensions of policy overreaction: (i) the effects of positive and negative events, and (ii) the effects of overestimation and accurate estimation of information. Based on these dimensions, the article identifies and illustrates four distinct modes of policy overreaction that reflect differences in the nature of implemented policy. It argues that the policy tools menu utilised in each mode of policy overreaction is dominated by unique mechanisms for changing or coordinating behaviour, which, once established, produce excessive - objective and/or perceived - social costs.

Original languageAmerican English
Pages (from-to)231-259
Number of pages29
JournalJournal of Public Policy
Volume32
Issue number3
DOIs
StatePublished - Dec 2012

Keywords

  • Coordination
  • emotions
  • groupthink
  • overconfidence
  • overreaction
  • risk

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