Senior Academic Seminar: Ronny Razin (LSE)

Mis-specifed politics and the recurrence of populism (with Gilat Levy and Alwyn Young).

Abstract: We analyse political competition when the source of political conflict stems from groups that have different mis-specified stochastic models of how policies affect outcomes. We focus on groups that differ in the simplicity of their model of the world; a "simple" group, that believes that only a subset of policy instruments affect outcomes, competes with another group that believes a wider range of policy instruments matter. Whoever wins the election chooses that period’s policies. Upon observing the policy outcomes, both groups update the weight they place on the different policy instruments, albeit within the confines of their model. We show that in all steady state equilibria the simple group is always in power with a strictly positive probability. Moreover, it always espouses policies that are more extreme compared to those of the other group, on all policy instruments it considers.