behavioral economics

[jrtom]

http://www.nytimes.com/2010/05/16/magazine/16Sunstein-t.html?pagewanted=print

Sunstein saw in the housing collapse, he told me, a “cascadelike process.” People thought they could handle more risk than they really could, and the regulatory system permitted too much systemic risk. Some of these errors were a result of legislation, but many were caused more quietly, by tiny rules issued by federal agencies — the kinds of regulations over which Sunstein now has some authority.

If you think about it — and Sunstein certainly has — you can see a similar problem in one of the fields OIRA deals with often: the environment. The small risks that people or companies take (in adding increments of carbon to the atmosphere or — as in the case of the recent Gulf Coast oil spill — maintaining drilling rigs) sometimes threaten to cascade into a catastrophe. So how can the government change the framework of choices that particular people are faced with so that their own small errors in risk perception don’t expose the whole of society?