The Myth of Bad Policy Choices: Why Democracies Choose Mediocre Policies
31 Pages Posted: 18 Nov 2008 Last revised: 15 Sep 2010
Date Written: June 14, 2010
Abstract
In a game-theoretical approach of probabilistic voting, we introduce biased beliefs among voters and retrospective voting. In order to micro-found biased beliefs we introduce the psychological concept of mental models. We put into perspective the claim that biased beliefs lead to bad policy outcomes in democracy, as has been argued, for instance, by Bryan Caplan (2007: The myth of the rational voter). We show that there is a self-correction mechanism in democracy that may mitigate the problem of biased beliefs. Democracy is characterized by suffering from mediocre mixtures of populist and good policies, and less by purely populist policy. Even good policy outcomes remain possible in equilibrium.
Keywords: Voting behaviour, dynamic party competition, valence, VP-functions, biased voting
JEL Classification: D72, D78, D83, D90, P16
Suggested Citation: Suggested Citation
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