Democracy, populism, and (un)bounded rationality

Binswanger, Johannes and Prüfer, Jens ORCID: (2012) Democracy, populism, and (un)bounded rationality. European Journal of Political Economy, 28 (3). pp. 358-372. ISSN 0176-2680

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In this paper we aim to understand how bounded rationality affects performance of democratic institutions. We consider policy choice in a representative democracy when voters do not fully anticipate a politician's strategic behavior to manipulate his reelection chances. We find that this limited strategic sophistication affects policy choice in a fundamental way. Under perfect sophistication, a politician does not make any use of his private information but completely panders to voters' opinions. In contrast, under limited sophistication, a politician makes some use of private information and panders only partially. Limited sophistication crucially determines how welfare under representative democracy compares to welfare under alternative political institutions such as direct democracy or governance by experts. We find that, under limited strategic sophistication, representative democracy is preferable to the other institutions from an ex ante perspective.

Item Type: Article
Uncontrolled Keywords: accountability,democracy,experts,populism,sophistication-k beliefs,strategic sophistication,economics and econometrics,political science and international relations ,/dk/atira/pure/subjectarea/asjc/2000/2002
Faculty \ School: Faculty of Social Sciences > School of Economics
UEA Research Groups: Faculty of Social Sciences > Research Centres > Centre for Competition Policy
Faculty of Social Sciences > Research Groups > Economic Theory
Faculty of Social Sciences > Research Groups > Industrial Economics
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Depositing User: LivePure Connector
Date Deposited: 08 Sep 2022 12:30
Last Modified: 21 Oct 2023 00:42
DOI: 10.1016/j.ejpoleco.2012.02.002

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