Inauguration of the Study Hub for International Economic Law and Development (SHIELD)

Anne van Aaken

Alexander von Humboldt Professor, Chair for Law and Economics, Legal Theory, Public International Law and European Law; Director of the Institute of Law and Economics, University of Hamburg

Beyond Rational Choice: International Trade Law and the Behavioral Political Economy of Protectionism

The classic political economy of trade models state behavior on the international plane by reference to the formation of domestic interests. Voters, interest groups and politicians are rational actors in this model, pursuing their economic preferences without cognitive or motivational distortions. We question the sufficiency of the rational choice model in the formation of contemporary trade policy. Starting from the classic political economy story, we explore real world deviations from rationally expected outcomes by drawing on cognitive psychology. Using both theoretical and empirical analysis, we seek to identify key distortions that can better explain voter and politician behavior in the current trade wars. We begin with loss aversion in that individuals have asymmetrical attitudes towards gains and losses. Rising inequality within the rich world amounts to a perceived relative loss particularly for middle-class citizens. Combined with the absolute rise of equality between countries, this can trigger a double loss frame – both as an individual loss and a national loss – that can profoundly shape anti-trade preferences in certain countries. Framing trade as a security threat also invokes powerful hawkish biases. Lastly, the availability bias can be provoked by social media mechanisms making people tend to focus on particular risks and overweight their import.