Working Paper: NBER ID: w21077
Authors: Alberto Alesina; Francesco Passarelli
Abstract: 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.
Keywords: No keywords provided
JEL Codes: H0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| loss aversion (G41) | status quo bias (D91) |
| loss aversion (G41) | preference for current policy (D78) |
| loss aversion (G41) | dampening polarization in policy preferences (D72) |
| loss aversion (G41) | reduced support for extreme policies (D72) |
| planning horizon (D25) | effect of loss aversion (G41) |
| younger voters (K16) | support for changes to status quo (O33) |
| loss aversion + risk (D81) | willingness to change policies (D78) |
| loss aversion + risk (D81) | disagreement about direction of change (O33) |