Markets vs. Politics, Correcting Erroneous Beliefs Differently

Martin Gregor ()

No 2007/21, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: In the fields of social choice, public choice and political economics, the main difference between private and political choice is whether individual preferences are aggregated to make a decision. A much less studied difference is whether beliefs are aggregated to make a decision. In this paper, we argue that the need for aggregation creates different incentives for belief updates in private and political choice. We review contemporary theories of biased beliefs in politics: Bayesian misperceptions, behavioral anomalies, and rational irrationality. We examine assumptions and consequences of all the approaches vis-à-vis issues of common knowledge, stability, symmetry, and multiplicity of stable states. As a route for further analysis, we construct an evolutionary model including a coordination failure. Differences in learning dynamics make the political play of this baseline game Pareto-inferior to the private play.

Keywords: public choice; political economics; beliefs; learning (search for similar items in EconPapers)
JEL-codes: B53 D72 D83 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2007-06, Revised 2007-06
New Economics Papers: this item is included in nep-cbe, nep-cdm, nep-evo, nep-hpe and nep-pol
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Chapter: Markets vs. politics: correcting erroneous beliefs differently (2008)
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