Are World Leaders Loss Averse?

Matthew Gould and Matthew Rablen

No 7763, CESifo Working Paper Series from CESifo

Abstract: We focus on the preferences of an extremely salient group of highly-experienced individuals who are entrusted with making decisions that affect the lives of millions of their citizens, heads of government. We test for the presence of a fundamental behavioral bias, loss aversion, in the way heads of government choose decision rules for international organizations. If loss aversion disappears with experience and high-stakes it should not exhibited in this context. Loss averse leaders choose decision rules that oversupply negative (blocking) power at the expense of positive power (to initiate affirmative action), causing welfare losses through harmful policy persistence and reform deadlocks. We find evidence of significant loss aversion (λ = 4:4) in the Qualified Majority rule in the Treaty of Lisbon, when understood as a Nash bargaining outcome. World leaders may be more loss averse than the populous they represent.

Keywords: loss aversion; behavioral biases; constitutional design; voting; bargaining; voting power; EU Council of Ministers (search for similar items in EconPapers)
JEL-codes: C78 D03 D72 D81 (search for similar items in EconPapers)
Date: 2019
New Economics Papers: this item is included in nep-cbe, nep-cdm, nep-gth and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Working Paper: Are World Leaders Loss Averse? (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_7763

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