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Biased beliefs and retrospective voting: why democracies choose mediocre policies

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  • Ivo Bischoff

    ()

  • Lars-H. Siemers

    ()

Abstract

There are two well-established empirical regularities about voters. First, they entertain systematically biased beliefs about how public policies affect economic outcomes. Second, voters vote retrospectively: they punish the incumbent for poor and reward him for good macroeconomic performance. Thus, political parties face a trade-off: offering popular yet economically harmful policies increases the chance of being elected today, but decreases the chance of re-election. We provide the first rigorous game-theoretical analysis of the trade-off. The model addresses two questions: How can biased beliefs and retrospective voting be explained consistently? What policy outcomes emerge in party competition? To micro-found persistently biased beliefs we introduce the psychological concept of mental models. Deviating from earlier studies, we allow parties to choose strategic mixtures of populist (i.e., bad yet popular) and good (but less popular) platforms. We show that retrospective voting provides a self-correction mechanism, so that parties offer strategic mixtures of policies in equilibrium rather than purely populist or purely good policy platforms. Thus, democracy is characterized by mediocre policy choices and half-hearted reforms. An incumbent bias or unclear responsibilities weaken the self-correction mechanism. Copyright Springer Science+Business Media, LLC 2013

Suggested Citation

  • Ivo Bischoff & Lars-H. Siemers, 2013. "Biased beliefs and retrospective voting: why democracies choose mediocre policies," Public Choice, Springer, vol. 156(1), pages 163-180, July.
  • Handle: RePEc:kap:pubcho:v:156:y:2013:i:1:p:163-180
    DOI: 10.1007/s11127-011-9889-5
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Christian Bergholz & Ivo Bischoff, 2016. "Citizens‘ support for inter-municipal cooperation: evidence from a survey in the German state of Hesse," MAGKS Papers on Economics 201643, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    2. repec:kap:pubcho:v:174:y:2018:i:3:d:10.1007_s11127-018-0500-1 is not listed on IDEAS
    3. Carlos Seixas & António Brandão & Manuel Luís Costa, 2013. "Policy Choices by an Incumbent - A Case with Down-Up Problem, Bias Beliefs and Retrospective Voting," FEP Working Papers 485, Universidade do Porto, Faculdade de Economia do Porto.
    4. Schnellenbach, Jan & Schubert, Christian, 2015. "Behavioral political economy: A survey," European Journal of Political Economy, Elsevier, vol. 40(PB), pages 395-417.
    5. Lothar Grall, 2016. "Geography, Parental Investment, and Comparative Economic Development," MAGKS Papers on Economics 201646, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    6. Schnellenbach, Jan & Schubert, Christian, 2014. "Behavioral public choice: A survey," Freiburg Discussion Papers on Constitutional Economics 14/03, Walter Eucken Institut e.V..
    7. Khani Hoolari, Seyed Morteza & Taghinejad Omran, Vahid, 2017. "Natural Budget Deficit and Natural Political Cyclicality," MPRA Paper 78107, University Library of Munich, Germany.
    8. Christian Bergholz & Ivo Bischoff, 2015. "Citizens‘ preferences for inter-municipal cooperation in rural areas: evidence from a survey in three Hessian counties," MAGKS Papers on Economics 201523, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    9. Sturm, Silke, 2019. "Political Competition: How to Measure Party Strategy in Direct Voter Communication using Social Media Data?," Hamburg Discussion Papers in International Economics 1, University of Hamburg, Chair of International Economics.
    10. Lothar Grall & Juergen Meckl, 2016. "Natural Selection, Technological Progress, and the Origin of Human Longevity," MAGKS Papers on Economics 201645, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    11. Carlos Viana de Carvalho & Eduardo Zilberman & Ruy Ribeiro, "undated". "Sentiment, Electoral Uncertainty and Stock Returns," Textos para discussão 655, Department of Economics PUC-Rio (Brazil).
    12. Monika Banaszewska & Ivo Bischoff, 2018. "Grants-in-aid and the prospect of re-election: The impact of EU funds on mayoral elections in Poland," MAGKS Papers on Economics 201822, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    13. Lothar Grall & Juergen Meckl, 2016. "Ice Age Climate, Somatic Capital, and the Timing of the Neolithic Transition," MAGKS Papers on Economics 201644, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).

    More about this item

    Keywords

    Voting behavior; Dynamic party competition; Valence; Retrospective voting; Biased beliefs; Mental models; D72; D78; D83; D90; P16;

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D90 - Microeconomics - - Micro-Based Behavioral Economics - - - General
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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