Are World Leaders Loss Averse?

Matthew Gould () and Matthew Rablen
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Matthew Gould: Department of Economics and Finance, Brunel University London, Cleveland Road, Uxbridge, UB8 2TL, UK

No 2024011, Working Papers from The University of Sheffield, Department of Economics

Abstract: We focus on the preferences of a 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, by examining heads of governments choice of decision rules for international organizations. Loss averse leaders would choose decision rules that oversupply negative (blocking) power at the expense of positive power (to initiate affirmative action), causing potential welfare losses through harmful policy persistence and reform deadlocks. If loss aversion is muted by experience and high-stakes it may not be exhibited in this context. We find evidence of significant loss aversion implied in the Qualified Majority rule of 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; 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)
Pages: 32 pages
Date: 2024-11
New Economics Papers: this item is included in nep-cdm, nep-gth, nep-pol and nep-upt
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https://www.sheffield.ac.uk/economics/research/serps First version, November 2024 (application/pdf)

Related works:
Working Paper: Are World Leaders Loss Averse? (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:shf:wpaper:2024011

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