The root of short-termism: implication for institutions

By Shahab Sabahi – Energy and Environment for Development – Research Group

If public policy experts are asked to describe the global challenges, they will provide a rich account of most important problems, potential solutions, and typically the institutional constraints to the solutions. What is institution? How do the experts assume the role of institutions in their analysis? In a broad sense, institutions are rules of the social game in which individuals interact with each other and the society as a whole. This definition links institutions closely with the way individuals think. Rules reflect cause-and-effect relationship. But causality is also fundamental organizing principle of individual thinking (Bower and Morrow 1991). The experts tend to recount their professional opinions with narratives that have a causal structure. The causal mental model is thus an individual’s interpretation of the institutional rules that constrain their decisions.

Having the above premise, we can say that the main institutional argument of public policy is that the actions of decision makers are largely determined by a feedback between institutions and the mental models of these decision makers. Nowadays, among the experts, the global consensus favors the efficiency of market economy; therefore this consensus leads to adopting the institutions of the capitalist system. As these institutions have proven their legitimacy for an efficient economic system, in return, their feedback influences the decision makers’ mindset. Accordingly the predominant of institutional order in societies prioritizes short term economics achievement over long term sustainability and system stability. It persuades decision makers to adopt cognitively inharmonious mental models in which economic efficiency achievement values higher than socio-economic harmony for the society.  While thinking that long term concerns should guide the public policy decisions, the mental models of decision makers focus only on economic concerns that, they believe, could destabilize the social system in shorter term. In the end, the short term economic concerns will determine which policies will be implemented. There is no way to get out of the link between mental models and institutions and they together constitute the decision making process.

Cognitive scientists assert that the more the formal institutions dominate the actions of decision makers, the stronger the cognitive dissonance they experience; but the stronger their cognitive dissonance, the more decision makers try to reduce it by adhering to the existing institutional order. They also explain that the individually conceived mental models form the building blocks for determining expert’s socially constructed reality of the issues.

The mental models than can be observed in experts’ narratives are complex causal networks containing both normative and factual statements which are reflected in the institutions and then influence the public policy decisions.