Enlarging the societal pie through wise legislation

We offer a psychological perspective to explain the failure of governments to create what Joseph Stiglitz (1998) calls near-Pareto improvements. Our tools for analyzing these failures reflect the difficulties people have trading small losses for large gains: the fixed-pie approach to negotiations, the omission bias and status-quo bias, parochialism and dysfunctional competition, and the neglect of secondary effects. We examine the role of human judgment in the failure to find wise tradeoffs across diverse applications of citizen and government decision-making, including AIDS treatment, organ donation systems, endangered species protection, subsidies, and free trade. Collectively, we seek to offer a psychological approach for understanding suboptimality in government decision making.