Regulatory Reactivity Risks Mental Errors

          Last month's essay, Commissions are not Courts; Regulators are Not Judges, argued against regulatory reactivity.  Courts exercise judicial power, addressing only the parties' pleas; commissions exercise legislative power, making policy to serve the public.  The difference is profound.  A commission that addresses only the parties' self-interests will fail to achieve the larger public interest.

          Yet some regulators do see themselves as judges.  They wait for disputes to resolve rather than look for problems to solve.  Their choice is rooted in personal preference, because it has no statutory basis.  And it cannot produce the best possible decisions.  Thanks to discoveries from the fields of psychology and behavioral economics, we now know that passivity leads to error.


System 1 and System 2

          Psychologist Daniel Kahneman describes two "modes of thinking," known as System 1 and System 2.1  System 1 "operates automatically and quickly, with little or no effort and no sense of voluntary control."  It is "the source of the impulses that often become your choices and your actions."  System 1 is illustrated by the mental effort required to complete the phrase "2 times 2 equals ...."   System 2, in contrast, "allocates attention to the effortful mental activities that demand it...."  It is represented by the mental effort it takes to multiply 17 x 24.

          Here's the problem.  Most of the time, System 1 operates "without your conscious awareness of its activities. . . .[I]t cannot be turned off."  And it is "radically insensitive to both the quality and the quantity of the information that gives rise to impressions and intuitions."   As a result, it is "the origin of many of the systematic errors in your intuitions"—errors that are "often difficult to prevent."   We can prevent these errors and biases only by the "enhanced monitoring and effortful activity of System 2."  If System 2 fails to detect the errors, we get biases.


What You See is All There Is

          A common source of biased thinking is a mental tendency Kahneman calls WYSIATI—"What you see is all there is."  WYSIATI is a product of System 1.  You treat the information in front of you "as if it were all there is to know."  From that incomplete information, you "build the best possible story, . . . and if it is a good story, you believe it."  In fact the less information you have, the easier you can "construct a coherent, believable story”—even if the information you have is not true or not complete.   A mind influenced by WYSIATI "will achieve high confidence much too easily by ignoring what it does not know."


          1 Kahneman won the Nobel Prize in Economics in 2002.  Quotes in this essay come from his Thinking, Fast and Slow (2011), a must-read masterpiece on the origins and types of mental biases that afflict us all.



Testimony, Papers, and Presentations

The testimony relates to AltaGas’s proposed acquisition of WGL Holdings, Inc. and Washington Gas Light Company.
The testimony addresses the following: the effect of the transaction on consumers, including: (1) reasonableness of the purchase price, including whether the purchase price was reasonable in light of the savings that can be demonstrated from the merger and whether the purchase price is within a reasonable range; (2) whether ratepayer benefits . . .
Testimony addresses the issues of whether the proposed transaction affects the interests of ratepayers; the ability of JCP&L and MAIT to provide safe, adequate, and proper utility service at just and reasonable rates; and whether the proposed transaction is in the public interest.
This expert report was submitted to a federal trial court in May 2016 on behalf of City of Jacksonville, Florida. The litigation, and report, involve a 1943 disaffiliation of a gas corporation from its holding company, as mandated by the Public Utility Holding Company Act of 1935. The report explains why the disaffiliation did not prevent liability for the costs of environmental cleanup, if such liability exists under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980, from passing to the new corporation.

Books by Hempling

Regulating Public Utility Performance

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Regulating Public Utility Performance:  The Law of Market Structure, Pricing and Jurisdiction

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Preside or Lead

Preside or Lead?
The Attributes and Actions of Effective Regulators

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Panel on Practice Principles for New Regulatory Lawyers

UDC Law School Panel
Is the Exelon Takeover of Pepco in the Public Interest?

Nigeria Electricity Regulatory Commission
3rd Judges’ Seminar

Telecom Forum
Asamblea Plenaria REGULATEL

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Working with Scott Hempling is both a pleasure and an honor. Ethical, fair-minded, and dedicated—these are a few of the attributes that Scott brings to his work and his clients. His pursuit of justice is to ensure that a practical outcome will ensue. Scott recognizes the significance of every issue and its implications for any person involved either directly or indirectly. His wide-angle lens encompasses a broad and deep technical legal knowledge that allows him to decipher and give insight into every challenge.
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