Enlarging the societal pie

Based on contemporary research in decision making, negotiation, and cognitive psychology, we offer a cognitive perspective to explain the failure of governments to create what Stiglitz (1998) calls near-Pareto improvements. We examine the role of human judgment in the failure to find wise tradeoffs across diverse applications of government decision-making, including organ donation systems, endangered species protection, interstate competition, overfishing, and free trade. Our tools for analyzing these failures reflect the difficulty people have trading small losses for large gains, and include the omission bias, status-quo bias, the fixed-pie approach to negotiations, unwillingness to solve social dilemmas, ignoring secondary effects, and discounting the future. Collectively, we seek to offer a new approach for understanding suboptimality in government decision making.