Overreaction and Bubbles in Politics and Policy

Although research examining overreaction in politics and policy remains at an early stage, it is clear that it largely develops along three paths: 1) psychological explanations which put all overreactions down to errors derived from cognitive biases and constraints on information processing, as well as sociopsychological dynamics in small decision-making groups; 2) emerging institutional explanations which put all overreaction down to errors derived from institutional values, procedures, myths, and routines; 3) emerging strategic explanations centering on the idea that overreactions in politics and policy at times reflect intentional choices which may derive from the desire of political executives to pander to voters’ policy positions, to appear more competent than challengers, or to signal extremity to voters. This chapter outlines the conceptual foundations of these explanations, their analytical anatomy, and their conceptual reach. It starts by defining overreaction in politics and policy and then elaborates on the analytical foundations of these explanations and the ways they integrate theories and findings from cognitive sciences. It then highlights the disproportionate policy perspective and the derived repertoire of deliberate policy overreactions. Next, it elaborates on the way strategic explanations reconcile intentionality with behavioral micro-foundation. It then looks at policy and political overreaction which are sustained by positive feedback processes over a relatively long period of time—termed “policy bubbles” and “political bubbles,” respectively. It concludes by describing a number of directions in which the overreaction agenda could be experimentally broadened to better encompass scope conditions of its cognitive causes and the dynamics of policy bubbles.