Reference Dependence and Politicians' Credibility

Edoardo Grillo

No 353, Carlo Alberto Notebooks from Collegio Carlo Alberto

Abstract: We consider a model of electoral competition in which two politicians compete to get elected. Each politician is characterized by a valence, which is unobservable to voters and can take one of two values: high or low. The electorate prefers politicians with high valence, but random shocks may lead to the victory of low-valence ones. Candidates make statements concerning their valence. We show that if voters are standard expected utility maximizers, politicians' statements lack any credibility and no information transmission takes place. By introducing reference-dependent preferences and loss aversion a là Koszegi and Rabin, we show that full revelation is possible. Indeed, if the electorate believes to candidates' announcements, such announcements will affect its reference point. As a result, if voters find out that a candidate lied, pretending to be high valence when she is not, they may decide to support the opponent in order to avoid the loss associated with appointing a candidate worse than expected.

JEL-codes: D03 D72 D82 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2014
New Economics Papers: this item is included in nep-cdm, nep-cta, nep-mic, nep-pol and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:cca:wpaper:353

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