“Empathy,” Oakley notes, “is not a uniformly positive attribute. It is associated with emotional contagion; hindsight bias; motivated reasoning; caring only for those we like or who comprise our in-group (parochial altruism); jumping to conclusions; and inappropriate feelings of guilt in noncooperators who refuse to follow orders to hurt others.” It also can produce bad public policy:
Ostensibly well-meaning governmental policy promoted home ownership, a beneficial goal that stabilizes families and communities. The government-sponsored enterprises Freddie Mac and Fannie Mae allowed less-than-qualified individuals to receive housing loans and encouraged more-qualified borrowers to overextend themselves. Typical risk–reward considerations were marginalized because of implicit government support.
The government used these agencies to promote social goals without acknowledging the risk or cost. When economic conditions faltered, many lost their homes or found themselves with properties worth far less than they originally had paid. Government policy then shifted to the cost of this “altruism” to the public, to pay off the too-big-to-fail banks then holding securitized subprime loans. . . . Altruistic intentions played a critical role in the development and unfolding of the housing bubble in the United States.