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In uncertainty we trust: a median voter model with risk aversion

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  • Pavel A. Yakovlev

    (Duquesne University, Department of Economics and Quantitative Sciences, Pittsburgh)

Abstract

The principal-agent problem and uncertainty are some of the key factors affecting financial and political markets. Fear of the unknown plays an important role in human decision making, including voting. This article describes a theoretical model where voter risk aversion towards uncertainty gives political incumbents a significant advantage over their challengers, exacerbating the principal-agent problem between voters and legislators. The model presented predicts that a rise in voter uncertainty concerning the challenger allows the incumbent to deviate from the median voter’s policy preference without losing the election. This model reconciles the paradoxical coexistence of ideological shirking and high incumbent reelection rates without abandoning the elegant median voter framework.

Suggested Citation

  • Pavel A. Yakovlev, 2011. "In uncertainty we trust: a median voter model with risk aversion," Financial Theory and Practice, Institute of Public Finance, vol. 35(4), pages 465-477.
    • Handle: RePEc:ipf:finteo:v:35:y:2011:i:4:p:465-477
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    References listed on IDEAS

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    Cited by:

    1. Jan Kluge, 2018. "Sectoral diversification as insurance against economic instability," Journal of Regional Science, Wiley Blackwell, vol. 58(1), pages 204-223, January.
    2. Yakovlev, Pavel & Tosun, Mehmet S. & Lewis, William P., 2012. "Legislative Term Limits and State Aid to Local Governments," IZA Discussion Papers 6456, Institute of Labor Economics (IZA).

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