PUBLIC POLICY IMPLICATIONS OF COGNITIVE BIASES AND HEURISTICS

Abstract

In the last decade, public policies witnessed a couple of innovations due to considerable evolvements in economic theory. The rationality that is one of the essential principles of economic theory was questioned due to some empirical violation examples. Hence, behavioral economics that uses psychological insights to understand human behaviors has risen as a new branch of economics. According to the findings of behavioral economics, some cognitive biases and heuristics may lead individuals to act irrationally. Therefore, considering the most fundamental actor in policymaking is humans, it is suggested that the policies should be designed based on this fact. Hence, the goal of this project is to analyze the efficiency of behavioral economics into public policymaking. It will be discussed whether behavioral economics' findings, more specifically, cognitive biases and heuristics can bring better outcomes than the traditional way of policymaking in some specific areas. For this purpose, several application examples of cognitive biases and heuristics will be presented in the second section of this study. Nevertheless, only status quo bias, framing effect, and mental accounting were selected for this study due to application features in building and implementing public policies.