EC302 Political Economics

Lecture 1- Introduction
October 2015

About me:
Ronny Razin

r.razin@lse.ac.uk
4.01, 32 Lincoln Inn Fields
Mondays, 11:15-12:15

Why Political Economics?

Why Political Economics?
Motivating Example:
The debate about online debates

Political organizations online OccupyWallStreet The revolution continues worldwide! .

Other organizations online Sports: Crowd-funding: Online Commercial companies? Crowd-ownership? Crowdgovernance? .

Online deliberation with large numbers of participants ● Is it a good idea? .

Online deliberation with large numbers of participants ● Is it a good idea? 1. . Legitimacy. 3. Information aggregation. Participation and engagement. Preference aggregation. 2.

Preference aggregation. Information aggregation. 2. 3. Participation and engagement. Legitimacy.Online deliberation with large numbers of participants ● Is it a good idea? Economics 1. Deliberative Democracy .

Online deliberation with large numbers of participants ● Is it a good idea? ● How should we design platforms for deliberation? .

Online deliberation with large numbers of participants ● Is it a good idea? ● How should we design platforms for deliberation? A Mechanism design approach to group decision making .Sequentiality .Competition .Auctions .

Online deliberation with large numbers of participants ● Is it a good idea? ● How should we design platforms for deliberation? ● What are and what is missing in our models of group decision processes? .

Deliberative democracy .

Theory of Communicative Action (1981) .Deliberative democracy Habermas.

it must be preceded by authentic deliberation. ● Authentic deliberation is deliberation among decision-makers that is free from distortions of unequal political power.Deliberative democracy ● For a democratic decision to be legitimate. .

● Diversity: all major positions relevant to the matter at hand and held by the public are considered. ● Conscientiousness: participants sincerely weigh all arguments ● Equal consideration: views are weighed based on evidence. not on who is advocating a particular view.Deliberative democracy Fishkin’s model (legitimate deliberation) Five characteristics essential for legitimate deliberation ● Information: Accurate and relevant data is made available to all participants. ● Substantive balance: different positions are compared based on their supporting evidence. .

Reason based. Consensus as a goal. 3. 4. Guttman and Thompson (reasoning based) ● Common themes: 1. . Rational: based on evidence and information.Deliberative democracy Other Models and common themes ● Cohen (ideal deliberation). Deliberation as a key factor. 2. 5. Dynamism.

● What about incentives? why would participants be sincere? . reason-based? ● Relies heavily on culture and less on formal institutions.Deliberative democracy An Economist`s thoughts: ● Is it purely a Normative theory? ● Legitimacy.

. ● Deliberative polls.Deliberative democracy In practice ● Occupy movement.

Information aggregation. . participation and engagement. (culture as equilibrium).Economics of group decision making ● ● ● ● ● Rational Based. Legitimacy. Preference aggregation. The importance of institutions.

participation and engagement Preference aggregation .Economics of group decision making The information aggregation approach to group decision making Legitimacy.

participation and engagement Preference aggregation Arrow's Impossibility Theorem .Economics of group decision making The information aggregation approach to group decision making The voting paradox Legitimacy.

Information aggregation The crowd and the Ox .

Information aggregation The crowd and the Ox What would have happened if we let these 800 villagers deliberate about the ox first? .

Deliberation might hamper this objective.Information aggregation The moral of the story ● ● To aggregate information you want to elicit the independent information that the crowd has. .

Information aggregation Research questions ● ● Can large elections aggregate information efficiently? What is the importance of formal voting rules? .

Jurors vote. to acquit or convict. The accused is either guilty or innocent. no accounting for incentives. jurors “get” a signal that is correct more than half of the time. 2. 4. no deliberation 3.Information aggregation Condorcet's jury theorem ● ● Marquis de Condorcet in his 1785 work Essay on the Application of Analysis to the Probability of Majority Decisions. Condorcet’s model of Democracy: 1. Jurors vote sincerely. .

Information aggregation Condorcet's jury theorem Theorem: as the number of Jurors increases. the probability that they choose the right thing converges to one! .

Informational externalities.Jurors have different notions of reasonable doubt.different preferences. The swing voter’s curse! . .Information aggregation Accounting for incentives ● why would someone not vote sincerely? . .

(Fedderesen and Pesendorfer. Austen-Smith and Banks) ● Caveats: ● Unanimity rule maximizes the probability of convicting the innocent (Feddersen and Pesendorfer) .Information aggregation Results ● Information aggregation holds even when taking account of incentives.

Austen-Smith and Banks) ● Caveats: ● Unanimity rule (Feddersen and Pesendorfer) Anecdote: The Talmud rules that a unanimous verdict by the Sanhedrin (Jewish court) must be thrown out and the defendant must be exonerated! .Information aggregation Results ● Information aggregation holds even when taking account of incentives. (Fedderesen and Pesendorfer.

(Martinelly. Razin and Levy. (Ortoleva and Snowden. (Piketty. Austen-Smith and Banks) ● Caveats: ● Unanimity rule (Feddersen and Pesendorfer) ● costly information acquisition. Persico. Meirovitch) ● behavioral voters and Media.Information aggregation Results ● Information aggregation holds even when taking account of incentives. Balazs and Gershkov) ● votes used to signal to politicians. Shotts. Gul and Pesendorfer) ● other information structures? . Razin. (Fedderesen and Pesendorfer.

● More generally. Sunstein ● .Information aggregation Implications Elections are enough. "Deliberating Groups Versus Prediction Markets (Or Hayek's Challenge to Habermas)". we do not need deliberation when we have enough people. Cass R.

(Gerardi and Yariv) 3. (Austen-Smith and Feddersen) 2. Adding deliberation does not increase welfare and sometimes might decrease it. but for unanimity rule. No role for dynamics in deliberation. (Gerardi and Yariv. Dekel and Piccione) . Deliberation washes out the importance of the consensus level. ● Results: 1.Deliberation A Benchmark ● Adding a stage of deliberation before the voting.

Deliberation Further results: Hazards of Deliberation “In individuals. nations. insanity is rare. but in groups. and epochs it is the rule. parties.” .

” .Deliberation Further results: Hazards of Deliberation “Never underestimate the power of stupid people in large groups.

Bales (1950) ● Caveat: (small) Groups make participants more rational? (Bornstein.. risky and cautious shifts. Eliaz Ray and Razin) ● Hidden profiles. (Janis. (Callander.Deliberation Further results: Hazards of Deliberation ● Herding behaviour. Reputation.. large groups base decisions on smaller number of people.. Stoner. . Fey..) ● Group think and Group polarization. Banerjee. Bornstein and Yaniv.). ● Interaction Process analysis (IPA). Cooper and Kagel. Sunstein.

Economics Vs Deliberative democracy Economics Deliberation is useless Deliberation is useful Deliberative Democracy .

Economics Vs Deliberative democracy Economics Deliberation is useless the weight of the ox Deliberation is useful Deliberative Democracy .

but people don't have the time to commit to informed direct democracy."should we use online deliberation in politics?" Maybe people are a-political because the way the political system is designed these days Maybe if we change the system and allow for more accountability and participation this would engage more people.. Lovely in theory.. .

Economics Vs Deliberative democracy Economics the weight of the ox Deliberation is useless Deliberation is useful "should we use online deliberation?" Deliberative Democracy .

Economics Vs Deliberative democracy Economics the weight of the ox Deliberation is useless Deliberation is useful Empirical question! "should we use online deliberation?" Deliberative Democracy .

and there is a bit of debate between economists and sociologists/philosophers… BUT. . so economics has something to say about politics.OK.

But what does this all have to do with Political Economics? ..and what are you we actually going to do in this course? ..

Spatial models of majority rule. . Political Economics: A very subjective history.Outline of course Introduction to game theory. Social Choice/Preference aggregation.

Outline of course Voting and elections. Lobbying and political influence. Information aggregation and Crowdsourcing Design of large-group deliberation platforms .

. The following books are recommended as supplements to what is covered in the lectures. W. 1. K. Prospect Heights. Norton & Company. for different lectures.H. Bonchek. Liberalism Against Populism. Behavior and Institutions. London. Analyzing Politics.Logistics and Useful information . Shepsle and M. Waveland Press.S. W. 2. . Riker. W.Unfortunately. there is no textbook covering all the material in the course. . Illinois.A. please check Moodle.Lecture notes and sets will be made available on the course Moodle webpage.Some research papers will be assigned. Rationality. New York.