Good Policy Choices Even When Voters Entertain Biased Beliefs: A Model with Endogenous Valence

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Good Policy Choices Even When Voters Entertain Biased Beliefs: A Model with Endogenous Valence

Author Info

Ivo Bischoff () (Justus-Liebig-University Gießen, Department of Economics)
Lars Siemers () (RWI Essen – Institute for Economic Research, Department of Public Finance)

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Abstract

In “The Myth of the Rational Voter” Brian Caplan shows that voters entertain systematically biased beliefs on a number of essential issues of economic policy and concludes that this leads democracies to choose bad policies. We introduce the psychological concept of mental models to address voters’ naive reasoning about the economy and thereby explain the persistent bias in beliefs. Next, we develop a game-theoretical model to show that this does not automatically lead to bad policy choices. The model formalizes Caplan’s thought experiment No. 4 by introducing endogenous party valence to a model of probabilistic voting. In so doing, we provide an investigation of when good policies are chosen in democracy. Based on our findings, we discuss the impact of different political institutions on economic outcomes.

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Publisher Info
Paper provided by Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung) in its series MAGKS Papers on Economics with number 200824.

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Length: 34 pages
Date of creation: 2008
Date of revision:
Publication status: Forthcoming in
Handle: RePEc:mar:magkse:200824

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Find related papers by JEL classification:
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy-Making and Implementation
D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
D90 - Microeconomics - - Intertemporal Choice and Growth - - - General
P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

This paper has been announced in the following NEP Reports:

NEP-ALL-2008-11-25 (All new papers)
NEP-CDM-2008-11-25 (Collective Decision-Making)
NEP-POL-2008-11-25 (Positive Political Economics)

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