Bounded Evaluation: Cognition, Incoherence, and Regulatory Policy

Abstract

Cass Sunstein, Daniel Kahneman, David Schkade, and Ilana Ritov have recently advanced a cognitive explanation for incoherence in legal decisionmaking, showing how decision makers tend to make micro-level judgments that make little sense when viewed from a broader perspective. Among other things, they claimed to have discovered striking incoherence in regulatory policy evidenced by varied penalty levels across different statutes, with less serious violations sometimes backed up with higher penalties than more serious violations. This paper comments on Sunstein et al.'s treatment of incoherence in regulatory policy, arguing that the same cognitive limitations that Sunstein et al. argue lead to incoherence in the design of regulatory policy also affect judgments about the existence of incoherence itself. Due to cognitive effects, individuals may have a tendency to see incoherence in the legal system when on closer examination there is none. Specifically, observable variations in regulatory policies will sometimes be sensible and justifiable, even though people may at first glance think they are obviously incoherent. When it comes to regulatory penalties, these penalties could quite sensibly be higher for less serious violations if other considerations discussed in this paper are taken into account. The same kind of bounded evaluation problem arises when regulations are judged to be incoherent based on variation in their cost-effectiveness. Regulatory policies that appear incoherent when compared along one dimension or evaluated with only one purpose in mind will not necessarily be properly viewed as incoherent once other dimensions or purposes are taken into account. Indeed, because the conditions underlying regulatory policy making are both varied and complex, judgments about the incoherence of regulatory policies will be unavoidably difficult and even sometimes incoherent themselves.