Risky Political Changes: Rational Choice vs Prospect Theory

Francesco Passarelli

No 39, ISLA Working Papers from ISLA, Centre for research on Latin American Studies and Transition Economies, Universita' Bocconi, Milano, Italy

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.

Keywords: prospect theory; behavioral economics; voting behavior; behavioral political economy (search for similar items in EconPapers)
JEL-codes: C9 D72 D81 H1 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2011-11
New Economics Papers: this item is included in nep-cbe, nep-cdm, nep-evo, nep-hme, nep-hpe, nep-pol and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
ftp://ftp.unibocconi.it/pub/RePEc/slp/papers/islawp39.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 500 Failed to connect to FTP server ftp.unibocconi.it: No such host is known.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:slp:islawp:islawp39

Access Statistics for this paper

More papers in ISLA Working Papers from ISLA, Centre for research on Latin American Studies and Transition Economies, Universita' Bocconi, Milano, Italy via Sarfatti, 25 - 20136 Milano - Italy.
Bibliographic data for series maintained by Stefano Riela ().