Behavioral Economics and Fed Policymaking
Behavioral economics has continued to gain momentum in challenging the standard rational actor model in economics. With a few exceptions, the emphasis has been on the cognitive failure of individuals outside of government. Niclas Berggren estimates that 95.5 percent of behavioral economics articles in the leading economics journals do not contain an analysis of the cognitive ability of policymakers. This article offers a preliminary analysis of potential cognitive failures in the Federal Reserve’s conduct of monetary policy. Proposals to “debias” monetary policymaking are offered, along with a discussion of how the Fed’s existing institutional structure ameliorates or exasperates potential biases.