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Loss Aversion in Politics

Author

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  • Alberto Alesina
  • Francesco Passarelli

Abstract

We study loss aversion in majority voting. First, we show a status quo bias. Second, loss aversion implies a moderating effect. Third, in a dynamic setting, the effect of loss aversion diminishes with the length of the planning horizon of voters; however, in the presence of a projection bias, majorities are partially unable to understand how fast they will adapt. Fourth, in a stochastic environment, loss aversion yields a significant distaste for risk, but also a smaller attachment to the status quo. The application of these results to a model of redistribution leads to empirically plausible implications.

Suggested Citation

  • Alberto Alesina & Francesco Passarelli, 2015. "Loss Aversion in Politics," NBER Working Papers 21077, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:21077
    Note: POL
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    JEL classification:

    • H0 - Public Economics - - General

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