Policy bubbles: What factors drive their birth, maturity and death?

Moshe Maor at LSE Blog: “A policy bubble is a real or perceived policy overreaction that is reinforced by positive feedback over a relatively long period of time. This type of policy imposes objective and/or perceived social costs without producing offsetting objective and/or perceived benefits over a considerable length of time. A case in point is when government spending over a policy problem increases due to public demand for more policy while the severity of the problem decreases over an extended period of time. Another case is when governments raise ‘green’ or other standards due to public demand while the severity of the problem does not justify this move…
Drawing on insights from a variety of fields – including behavioural economics, psychology, sociology, political science and public policy – three phases of the life-cycle of a policy bubble may be identified: birth, maturity and death. A policy bubble may emerge when certain individuals perceive opportunities to gain from public policy or to exploit it by rallying support for the policy, promoting word-of-mouth enthusiasm and widespread endorsement of the policy, heightening expectations for further policy, and increasing demand for this policy….
How can one identify a policy bubble? A policy bubble may be identified by measuring parliamentary concerns, media concerns, public opinion regarding the policy at hand, and the extent of a policy problem, against the budget allocation to said policy over the same period, preferably over 50 years or more. Measuring the operation of different transmission mechanisms in emotional contagion and human herding, particularly the spread of social influence and feeling, can also work to identify a policy bubble.
Here, computer-aided content analysis of verbal and non-verbal communication in social networks, especially instant messaging, may capture emotional and social contagion. A further way to identify a policy bubble revolves around studying bubble expectations and individuals’ confidence over time by distributing a questionnaire to a random sample of the population, experts in the relevant policy sub-field, as well as decision makers, and comparing the results across time and nations.
To sum up, my interpretation of the process that leads to the emergence of policy bubbles allows for the possibility that different modes of policy overreaction lead to different types of human herding, thereby resulting in different types of policy bubbles. This interpretation has the added benefit of contributing to the explanation of economic, financial, technological and social bubbles as well”