Loss Aversion in Politics

NBER Working Paper No. 21077

Issued in April 2015

NBER Program(s):Political Economy



We study loss aversion in majority voting. First, we show a status quo bias. Second, loss aversion implies a moderating effect. Third, in a dynamic setting, the effect of loss aversion diminishes with the length of the planning horizon of voters; however, in the presence of a projection bias, majorities are partially unable to understand how fast they will adapt. Fourth, in a stochastic environment, loss aversion yields a significant distaste for risk, but also a smaller attachment to the status quo. The application of these results to a model of redistribution leads to empirically plausible implications.

Acknowledgments

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Document Object Identifier (DOI): 10.3386/w21077

Published: Alberto Alesina & Francesco Passarelli, 2019. "Loss Aversion in Politics," American Journal of Political Science, vol 63(4), pages 936-947. citation courtesy of

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