Cognition and Cost-Benefit Analysis

Cass R. Sunstein

Cost-Benefit Analysis: Legal, Economic, and Philosophical Perspectives


Cost-benefit analysis is often justified on conventional economic grounds, as a way of preventing inefficiency. But it is most plausibly justified on cognitive grounds-as a way of counteracting predictable problems in individual and social cognition. Poor judgments, by individuals and societies, can result from certain heuristics, from informational and reputational cascades, from thinking processes in which benefits are "on screen" but costs are not, from ignoring systemic effects of one-shot interventions, from seeing cases in isolation, and from intense emotional reactions. Cost-benefit analysis serves as a corrective to these cognitive problems. In addition, it is possible to arrive at an incompletely theorized agreement on cost-benefit analysis-an agreement that does not depend on controversial arguments (for example, the view that willingness to pay should be the basis for all social outcomes) and that can attract support from a variety of reasonable views. There is discussion as well of the role of distributional weights and other equitable factors in cost-benefit analysis. The conclusion is that the best argument for cost-benefit analysis is rooted in cognitive psychology and behavioral economics.