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

Author

Listed:
  • Ivo Bischoff

    () (Justus-Liebig-University Gießen)

  • Lars Siemers

    () (RWI Essen – Institute for Economic Research)

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.

Suggested Citation

  • Ivo Bischoff & Lars Siemers, 2008. "Good Policy Choices Even When Voters Entertain Biased Beliefs: A Model with Endogenous Valence," MAGKS Papers on Economics 200824, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  • Handle: RePEc:mar:magkse:200824
    as

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    File URL: http://www.uni-marburg.de/fb02/makro/forschung/magkspapers/24-2008_bischoff.pdf
    File Function: First version, 2008
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    More about this item

    Keywords

    Voting behaviour; dynamic party competition; valence; VP-functions; biased voting;

    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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