Good Policy Choices Even When Voters Entertain Biased Beliefs: A Model with Endogenous Valence

Ivo Bischoff () and Lars-Hinrich Siemers ()

No 200824, MAGKS Papers on Economics from Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung)

Abstract: In “The Myth of the Rational Voter” Brian Caplan shows that voters entertain systematically biased beliefs on a number of essential issues of economic policy and concludes that this leads democracies to choose bad policies. We introduce the psychological concept of mental models to address voters’ naive reasoning about the economy and thereby explain the persistent bias in beliefs. Next, we develop a game-theoretical model to show that this does not automatically lead to bad policy choices. The model formalizes Caplan’s thought experiment No. 4 by introducing endogenous party valence to a model of probabilistic voting. In so doing, we provide an investigation of when good policies are chosen in democracy. Based on our findings, we discuss the impact of different political institutions on economic outcomes.

Keywords: Voting behaviour; dynamic party competition; valence; VP-functions; biased voting (search for similar items in EconPapers)
JEL-codes: D72 D78 D83 D90 P16 (search for similar items in EconPapers)
Pages: 34 pages
Date: 2008
New Economics Papers: this item is included in nep-cdm and nep-pol
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Persistent link: https://EconPapers.repec.org/RePEc:mar:magkse:200824

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