[F]or ... assessing causal relationships, intuitions are often completely wrong, because they rely on shortcuts which have arisen as handy ways to solve complex cognitive problems rapidly, but at a cost of inaccuracies, misfires and oversensitivity. Bad Science, Ben Goldacre (page 238)This becomes a problem for policymaking under the current system, where government is often charged with identifying causal relationships and, if it gets them wrong, the consequences can be calamitous. For murky, complex social, economic and ecological relationships, we need a mechanism other than the one-size-fits-all, top-down approach that is a feature of the current policymaking system (and which can work well, when causal relationships are obvious). Central planning, a catastrophic failure when applied to economies, fails too in policy areas where there is a compelling need for diverse, adaptive approaches.
But central planning is precisely the approach we are taking in tackling extremely complex social and environmental problems: climate change, or warfare, for instance. They seem to be failing in much the same way as in the economy. There's little response to expanding knowledge or to changing circumstances. There's little diversity. Most important, failed approaches aren't terminated. The incentives are to maintain existing institutions, rather than to achieve the stated outcome.
That's where Social Policy Bonds could be a better alternative. They would reward people only if a specified outcome is actually achieved and sustained. A body that issues the bonds doesn't have to have an opinion about what causes a social problem. It just has to reward the people who solve it. Incentives are built into the system: only efficient solutions will be rewarded.
For more about Social Policy Bonds, please download my book (see right-hand column).