Loss Aversion in Politics
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.
We thank Roland Benabou, Stefano DellaVigna, Martin Dufwenberg, Nicola Gennaioli, Edoardo Grillo, David Laibson, Jessie Shapiro, Ken Shepsle, Andrei Shleifer and participants at a NBER Poltical Economics Conference, and seminars in Amsterdam, IMT Lucca, Rome, Turin, for very useful comments. Luca Riva provided comments and excellent editing. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.