How can governments respond to policy bubbles driven by dysfunctional emotions?

Abstract

People sometimes experience intense emotions with maladaptive behavioral consequences (i.e., dysfunctional emotions) that impair their judgment regarding policy problems, policy tools, and/or target populations, leading to the emergence of policy bubbles (i.e., sustained policy over-investment). In this article, I elaborate on three strategies that governments can implement when faced with policy bubbles driven by such emotions: the wait-and-see approach, the emotional containment approach, and the bubble-pricking approach. Based on studies of policy bubbles as well as financial and asset bubbles, I elaborate on the conditions under which each of these policy options may be the appropriate path to follow when encountering such policy bubbles. I conclude that the case for a wait-and-see approach is strong, among other instances, when such bubbles cannot be detected with a reasonable level of confidence while they are still in the initial overinvestment phase; the case for emotional containment is strong when policymakers are interested in preventing such bubbles from getting out of hand, yet they are politically constrained to better calibrate the level of policy investment to the severity of the policy problem; and the case for the bubble-pricking approach is strong when (i) the growth of policy bubbles driven by dysfunctional emotions causes significant harm and (ii) governments do not have at their disposal the necessary tools to keep the harmful effects of such policy bubbles and their burst at a manageable level. An in-depth understanding of context is critical in determining the best course of action.