Edoardo Grillo (Collegio Carlo Alberto)

“Reference Dependence and Electoral Competition”

abstract

“We consider a model of electoral competition in which two parties compete to get the support of a mass of voters. Each party is represented by a politician whose valence is unobservable. All voters prefer politicians with high valence, but ideological biases may lead them to vote according to party’s affiliation. Candidates can make statement concerning their valence. We show that if voters are standard expected utility maximizers, politicians’ statements lack any credibility and no information transmission is possible. By introducing reference-dependent preferences and loss aversion a là Koszegi and Rabin, we show that full information transmission is possible. This happens because credible announcements affect voters’ reference point; as a consequence, if voters find out that the candidate of their preferred party pretended to be high valence when he is not, they may vote for the opponent in order to avoid the psychological loss associated with supporting a candidate who turns out to be worse than expected.”