Irrationality

The reluctance of the American public to accept even the option of a public health care system (which, after all, should only increase competition and make the market more efficient: if government run programs are as inefficient as critics claim, then the more efficient private insurers should easily win out, right? There is little evidence, it seems to me, for the idea that private industries are less wasteful than public utilities, but whatever) seems so odd. After all, ultimately, they are being offered something, which they may take or leave, but why does it seem so threatening?

This highlights an essential fact which neither economists nor political scientists have fully assimilated: people are not particularly rational most of the time. I'm reading Kahneman's paper/lecture on "Bounded Rationality" and in it, he says: “The value of a good to an individual appears to be higher when the good is viewed as something that could be lost or given up than when the same good is evaluated as a potential gain” (Kahneman et al., 1990, 1991; Tversky and Kahneman 1991). This explains, in part, the resistance to the change. The good that people have--in this case, half-assed insurance provided through employment by companies which have a monopoly on a particular market--suddenly seems much more valuable because people believe they will lose it. Whereas previously, anyone who had any experience with filing a claim with their health insurance company should be aware that the private insurance offered is just, simply, not very good.

Of course, this leaves unexplained the people who do not have any kind of insurance who are opposing this reform. Perhaps they think that the good they might one day have will be taken away from them even before they have it?

The Los Angeles Times had an interesting piece up today about the way firefighting serviced used to be privately provided. People in a certain neighborhood would pay a subscription for the support of a firefighting company. Soon it became apparent that this was a public good (fires not being great respecters of imaginary lines) and that if your neighbor's house caught on fire, your own was at risk. We all pay for the lack of public health care in this country, which creates a system of perverse incentives for everyone involved.