Mirrored externalities.

• Author: Sun, Lisa Grow
• Position: II. Factors That Influence the Choice of Frame C. Exposure of Invisible Externalities through Conclusion, with footnotes, p. 160-185

3. Exposure of Invisible Externalities

   Certain kinds of externalities are both difficult to see and difficult to measure, usually because they involve increased risk rather than an immediately discernible, concrete effect. For example, so-called "security externalities" (89) that occur when "a private firm undertakes an action that creates a vulnerability (or possibly an uncompensated benefit) elsewhere in the economy" (90) may be largely invisible until disaster strikes. (91) Similarly, the externalities created by maintaining (or failing to maintain) a dam, levee, or other flood control infrastructure may not be apparent until failure and flooding occurs.

   Once disaster strikes, however, the negative externality frame becomes the face of the disaster. At least for a time then, post-disaster, the negative framing of externalities is likely to dominate public and scholarly discourse. After Hurricane Katrina, for instance, the rhetoric surrounding New Orleans's ill-fated levees focused on the tragic costs to New Orleans and its citizens of the levee failure, rather than the potential (future) advantages of better-maintained levees in preventing future flooding. (92)

   Similarly, during the recent financial crisis, the rhetoric focused on the way that large bank failures might cascade through the economy, leading to national, and even global, economic collapse. In the moment of crisis, no one was discussing the positive externalities of maintaining a stable banking system; all eyes were watching the "dire consequences of Lehman [] [Brothers'] failure" (93) ripple across the globe: "World markets fell, and the dollar wavered as investors everywhere sold assets across the board and sought refuge in the safest securities they could find, government bonds." (94) Soon, the rest of the United States' "largest and most powerful banks" were labeled "Too Big To Fail," (95) an appellation that itself underscored the fear that cascading failures would trigger global economic collapse. Like natural disasters, the financial meltdown suggests that, in times of crisis, we gravitate toward the negative framing.

   This analysis suggests that, even outside of crisis, the framing of externalities may have a temporal dimension: if the status quo (often assumed to be the natural, unchangeable state of the world) provides services--positive externalities--the loss or destruction of which will result in societal costs--negative externalities--those services may be unrecognized or underappreciated until they are lost. (96) We may not recognize the societal benefits of flourishing forests, healthy wetlands, thriving honeybee populations, and a stable climate until they are compromised. Thus, many externalities are likely to go unnoticed in their positive form and attract attention only once they have transitioned to negative externalities. Attempts to identify and quantify the value of ecosystem services are designed to try to counter this very phenomenon.

   3. WHY FRAMING MATTERS

   As the preceding Section suggests, we are constantly making choices, whether consciously or subconsciously, about the ways we frame externalities, and, in many contexts, there is sufficient space and opportunity for different potential narratives to take hold. The choice of stories is not unlimited or unconstrained, but usually there will be a choice between positive and negative stories we can tell. Certainly, the way we characterize a particular externality is influenced by our underlying intuitions about appropriate baselines. But baselines are often contested, rather than settled; fluid, rather than fixed; and malleable, rather than inflexible. (97) Not all property rights are clearly defined; (98) not all constitutional rights are clearly demarcated. (99) Likewise, the public may be divided about the strength of a moral claim to engage in a particular activity. Even where there is currently consensus on those matters, public opinion can shift over time. (100)

   The externality framing of a particular situation, then, may well change over time. If disaster brings the negative externality framing to the fore, the passage of time and the return to normalcy may shift the framing back to the positive (and perhaps largely invisible) frame. Conversely, a story about the positive externalities of something like vaccination may well flip to a negative framing if disease outbreaks occur. (101) Likewise, the dominant framing can shift if the positive externality story begins to focus on those who freeride on the positive externalities generated by others. In their classic article, One View of the Cathedral, Calabresi and Melamed employ the vaccination example to define freeloader, explaining that "[t]he freeloader is the person who refuses to be inoculated against smallpox because, given the fact that almost everyone is inoculated, the risk of smallpox to him is less than the risk of harm from the inoculation." (102) This framing begins to define freeloaders as villains and may pave the way for the narrative to shift from the positive externalities of vaccination to the negative externalities of the freeloader's "selfish" choice to refuse vaccination. Despite the typical textbook framing of vaccination as a positive externality, there may already be considerable public ambivalence about the most natural framing of the vaccination question.

   These scenarios suggest that the way we frame mirrored externalities is not only malleable, but manipulable. Framing is the most persuasive when it seems natural, and effective framing must resonate with "common sense," (103) but that does not preclude the potential for political operatives to manipulate framing to transform "what counts as common sense." (104) Indeed in other contexts, political scientists have found framing to have powerful effects on public perceptions; (105) there is no reason to think that externality frames would prove any different in the hands of political operatives.

   Sometimes policy areas seem untouchable, and it might be that for some problems externality frames prove stubborn. In which case, a well-known strategy is to wait for (or at least capitalize on) crisis, which provides a different sort of opening for political opportunism.

   Thus, to say that externality framing is influenced by baselines and the other factors we have identified is only half the story. The inverse is also true: the framing of externalities as positive or negative and the accompanying political narratives affect both the way that we allocate--and reallocate--rights and the way that we define--and redefine--the social and legal meaning of particular activities. This potential underscores the importance of understanding how different framing affects both individual processing of externalities and political and policy responses to issues.

   Section A of this Part examines framing effects on individual cognition, exploring the effect framing has on the way we think about and process externalities. In this discussion, we lean heavily on prospect theory, Nobel Prize-winning work developed by Amos Tversky and Daniel Kahneman. Prospect theory highlights a number of elements of human psychology and cognition relevant to our topic. This theory suggests that we will give much greater weight and attention to negative externalities and consistently undervalue positive externalities due to loss aversion, the availability heuristic, and our bimodal response to catastrophic risk.

   Section B considers how the framing of mirrored externalities affects politics. In particular, we consider (1) how the framing of an externality can signal the appropriateness of a particular policy solution and shape the terms of that debate; (2) how framing can bias our sense of what issues demand a policy response at all; (S) how the negative framing of externalities can pave the way for redefining underlying rights and entitlements; and (4) how positive framing creates the potential for hero narratives and even, perhaps, true heroes.

1. Individual Cognitive Psychology

   In 2002, when Daniel Kahneman won the Nobel Prize in economics in recognition of his work with his deceased co-author, Amos Tversky, the prize committee summarized its motivation for providing him the award as follows: "for having integrated insights from psychological research into economic science, especially concerning human judgment and decision-making under uncertainty." (106) While much of the research agenda of Kahneman and Tversky could easily fit under that rubric, the pinnacle of this work is arguably prospect theory, which is the greatest stride made thus far in behavioral economics' effort to improve upon economics' assumption that human behavior is rational and that people make decisions employing something akin to an expected utility model. (107) In contrast to traditional economics, behavioral economics is rooted in the notion that human capacity for rationality is limited. (108)

   Kahneman and Tversky laid the groundwork for prospect theory by studying heuristics--snap judgments that often lead us astray in predictable ways. (109) Once Kahneman and Tversky assembled enough heuristic scholarship, they began to see patterns and attempted to generalize that scholarship and many fundamental psychological observations into a macro model of human behavior they called "prospect theory." (110) This model of human behavior portrayed people as more irrational and nuanced than the traditional economic model would suggest. According to Kahneman:

   Utility cannot be divorced from emotion, and emotions are triggered by changes. A theory of choice that completely ignores feelings such as the pain of losses and the regret of mistakes is not only descriptively unrealistic, it also leads to prescriptions that do not maximize the utility of outcomes as they are actually experienced.... (111) Below we explain three major features of prospect theory and discuss the ways these features of human psychology...