Publication detail

Markets vs. Politics, Correcting Erroneous Beliefs Differently

Author(s): doc. PhDr. Martin Gregor Ph.D.,
Type: IES Working Papers
Year: 2007
Number: 21
Published in: IES Working Papers 2007/21
Publishing place: Prague
Keywords: public choice, political economics, beliefs, learning
JEL codes: B53, D72, D8
Suggested Citation: Gregor, M. (2007). “ Markets vs. Politics, Correcting Erroneous Beliefs Differently. ” IES Working Paper 21/2007. IES FSV. Charles University.
Grants: GAUK 319/2006/A-EK/FSV Rational Irationality: Adaptation on the Markets and in Collective Action
Abstract: In the fields of social choice, public choice and political economics, the main difference between private and political choice is whether individual preferences are aggregated to make a decision. A much less studied difference is whether beliefs are aggregated to make a decision. In this paper, we argue that the need for aggregation creates different incentives for belief updates in private and political choice. We review contemporary theories of biased beliefs in politics: Bayesian misperceptions, behavioral anomalies, and rational irrationality. We examine assumptions and consequences of all the approaches vis-à-vis issues of common knowledge, stability, symmetry, and multiplicity of stable states. As a route for further analysis, we construct an evolutionary model including a coordination failure. Differences in learning dynamics make the political play of this baseline game Pareto-inferior to the private play.
Downloadable: WP 2007_21_Gregor


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