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Risky Political Changes: Rational Choice vs Prospect Theory

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  • Francesco Passarelli

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Abstract

This paper describes policy alternatives as lotteries, and studies how policy preferences are distorted by the cognitive anomalies postulated by Prospect Theory. Loss aversion induces a status quo bias. However, due to the reflection effect, the bias is asymmetric: too moderate attitudes toward a good reform or a good candidate, and too low severity toward bad politics. The reflection effect also determines low loyalty in partisan voting and weak concerns about partisan issues. Preferences about nonpartisan issues are independent of wealth because people use the status quo as a reference point. Ambitious platforms have more chances to pass than incremental and detailed changes because people are risk seeking in the realm of losses. In general, according to Prospect Theory the policy conflict within the society is smoother than under full rationality. Moreover, a pure majority system yields either prolonged conservatism or a radical abandonment of the status quo.

Suggested Citation

  • Francesco Passarelli, 2011. "Risky Political Changes: Rational Choice vs Prospect Theory," ISLA Working Papers 39, ISLA, Centre for research on Latin American Studies and Transition Economies, Universita' Bocconi, Milano, Italy.
  • Handle: RePEc:slp:islawp:islawp39
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    File URL: ftp://ftp.unibocconi.it/pub/RePEc/slp/papers/islawp39.pdf
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    References listed on IDEAS

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    1. Gans, Joshua S. & Smart, Michael, 1996. "Majority voting with single-crossing preferences," Journal of Public Economics, Elsevier, vol. 59(2), pages 219-237, February.
    2. Attanasi, Giuseppe & Corazzini, Luca & Passarelli, Francesco, 2017. "Voting as a lottery," Journal of Public Economics, Elsevier, vol. 146(C), pages 129-137.
    3. repec:cup:apsrev:v:66:y:1972:i:02:p:555-568_13 is not listed on IDEAS
    4. Richard Zeckhauser, 1969. "Majority Rule with Lotteries on Alternatives," The Quarterly Journal of Economics, Oxford University Press, vol. 83(4), pages 696-703.
    5. Vincenzo Galasso, 2014. "The role of political partisanship during economic crises," Public Choice, Springer, vol. 158(1), pages 143-165, January.
    6. Jain, Sanjay & Sharun Mukand, 2003. "Public Opinion and the Dynamics of Reform," Royal Economic Society Annual Conference 2003 114, Royal Economic Society.
    7. Anthony Downs, 1957. "An Economic Theory of Political Action in a Democracy," Journal of Political Economy, University of Chicago Press, vol. 65, pages 135-135.
    8. Boycko, Maxim & Shleifer, Andrei & Vishny, Robert W., 1997. "Privatizing Russia," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522284, January.
    9. Andrew Gelman & Lane Kenworthy & Yu-Sung Su, 2010. "Income Inequality and Partisan Voting in the United States," Social Science Quarterly, Southwestern Social Science Association, vol. 91(s1), pages 1203-1219.
    10. Sanjay Jain & Sharun W. Mukand, 2003. "Redistributive Promises and the Adoption of Economic Reform," American Economic Review, American Economic Association, vol. 93(1), pages 256-264, March.
    11. repec:cup:apsrev:v:82:y:1988:i:03:p:719-736_19 is not listed on IDEAS
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    Cited by:

    1. Giuseppe Attanasi & Luca Corazzini & Nikolaos Georgantzís & Francesco Passarelli, 2014. "Special Section: Experiments on Learning, Methods, and Voting," Pacific Economic Review, Wiley Blackwell, vol. 19(3), pages 355-386, August.

    More about this item

    Keywords

    prospect theory; behavioral economics; voting behavior; behavioral political economy;

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • H1 - Public Economics - - Structure and Scope of Government

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