Misspecified Politics and the Recurrence of Populism
Abstract:
We develop a model of political competition between two groups that differ in
their subjective model of the data generating process for a common outcome. One group has a simpler model than the other group as they ignore some relevant policy variables. We show that perpetual changes of power are a natural feature of this dynamic learning environment and that simple world views -which can be interpreted as populist world views-imply extreme policy choices. Periods in which those with a more complex model govern increase the specification error of the simpler world view, leading the latter to underrate the effectiveness of complex policies and overestimate the positive impact of a few extreme policy actions. Periods in which the group with the simple world view implement their narrow policies result in subpar outcomes and a weakening of their omitted variable bias. Policy cycles arise, where each group’s tenure in power sows the seeds of its eventual electoral defeat.
their subjective model of the data generating process for a common outcome. One group has a simpler model than the other group as they ignore some relevant policy variables. We show that perpetual changes of power are a natural feature of this dynamic learning environment and that simple world views -which can be interpreted as populist world views-imply extreme policy choices. Periods in which those with a more complex model govern increase the specification error of the simpler world view, leading the latter to underrate the effectiveness of complex policies and overestimate the positive impact of a few extreme policy actions. Periods in which the group with the simple world view implement their narrow policies result in subpar outcomes and a weakening of their omitted variable bias. Policy cycles arise, where each group’s tenure in power sows the seeds of its eventual electoral defeat.
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