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EC302 Political Economics

Lecture 1- IntroductionOctober 2015

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About me:

Ronny Razin

r.razin@lse.ac.uk

4.01, 32 Lincoln Inn Fields

Mondays, 11:15-12:15

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Why Political Economics?

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Why Political Economics?

Motivating Example:The debate about online debates

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OccupyWallStreet The revolution continues worldwide!

Political organizations online

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Other organizations online

Sports: Crowd-funding:

Online Commercial companies? Crowd-ownership? Crowd-governance?

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● Is it a good idea?

Online deliberation with large numbers ofparticipants

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● Is it a good idea?

1. Information aggregation.

2. Preference aggregation.3. Legitimacy, Participation and engagement.

Online deliberation with large numbers ofparticipants

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● Is it a good idea?● How should we design platforms for deliberation?

Online deliberation with large numbers ofparticipants

A Mechanism design approach to group decision making

- Sequentiality - Competition

- Auctions

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● 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?

Online deliberation with large numbers ofparticipants

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Deliberative democracy

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Deliberative democracy

Habermas, Theory of Communicative Action (1981)

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Deliberative democracy

● For a democratic decision to be legitimate, it must be preceded byauthentic deliberation.

● Authentic deliberation is deliberation among decision-makers thatis free from distortions of unequal political power.

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Deliberative democracyOther Models and common themes

● Cohen (ideal deliberation), Guttman and Thompson (reasoningbased)

● Common themes:

1. Deliberation as a key factor.2. Rational: based on evidence and information.3. Reason based.4. Consensus as a goal.5. Dynamism.

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Deliberative democracyAn Economist`s thoughts:

● Is it purely a Normative theory?● Legitimacy, reason-based?● Relies heavily on culture and less

on formal institutions.● What about incentives? why would

participants be sincere?

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Deliberative democracyIn practice

● Occupy movement.● Deliberative polls.

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Economics of group decision making

Legitimacy,participation andengagement

Preference aggregation

The information aggregation

approach to group decisionmaking

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Information aggregationThe crowd and the Ox

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Information aggregationThe crowd and the Ox

What would have happened if we let these 800villagers deliberate about the ox first?

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Information aggregationThe moral of the story

● To aggregate information you want to elicit theindependent information that the crowd has.

● Deliberation might hamper this objective.

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Information aggregationCondorcet's jury theorem

● Marquis de Condorcet in his 1785 work Essay on the Applicationof Analysis to the Probability of Majority Decisions .

● Condorcet’s model of Democracy:

1. The accused is either guilty or innocent.2. jurors “get” a signal that is correct more than half of

the time.3. Jurors vote, to acquit or convict.4. Jurors vote sincerely.

no deliberation

no accounting for incentives.

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Information aggregationCondorcet's jury theorem

Theorem:

as the number of Jurors increases, the probability that they choose

the right thing converges to one!

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Information aggregationAccounting for incentives

● why would someone not vote sincerely? - different preferences.

- Jurors have different notions of reasonable doubt. - Informational externalities, The swing voter’s curse!

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Information aggregationResults

● Information aggregation holds even when taking account of incentives.

(Fedderesen and Pesendorfer, Austen-Smith and Banks)

● Caveats:● Unanimity rule maximizes the probability of convicting the innocent

(Feddersen and Pesendorfer)

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Information aggregationResults

● Information aggregation holds even when taking account of incentives.

(Fedderesen and Pesendorfer, 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 beexonerated!

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Information aggregationResults

● Information aggregation holds even when taking account of incentives.

(Fedderesen and Pesendorfer, Austen-Smith and Banks)

● Caveats:● Unanimity rule (Feddersen and Pesendorfer)● costly information acquisition, (Martinelly, Persico, Balazs and Gershkov)● votes used to signal to politicians, (Piketty, Razin, Shotts, Meirovitch) ● behavioral voters and Media, (Ortoleva and Snowden, Razin and Levy, Gul and Pesendorfer)● other information structures?

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Information aggregationImplications

● Elections are enough, we do not need deliberation when we haveenough people.

● More generally, "Deliberating Groups Versus Prediction Markets(Or Hayek's Challenge to Habermas)", Cass R. Sunstein

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Deliberation A Benchmark

● Adding a stage of deliberation before the voting.

● Results:

1. Adding deliberation does not increase welfare and sometimesmight decrease it. (Austen-Smith and Feddersen)

2. Deliberation washes out the importance of the consensus level,but for unanimity rule . (Gerardi and Yariv)

3. No role for dynamics in deliberation. (Gerardi and Yariv, Dekel and Piccione)

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Deliberation Further results: Hazards of Deliberation

“In individuals, insanity israre; but in groups , parties,

nations, and epochs it is therule.”

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Deliberation Further results: Hazards of Deliberation

“Never underestimate the powerof stupid people in large groups.”

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Deliberation Further results: Hazards of Deliberation

● Herding behaviour, Reputation. (Callander, Fey, Banerjee...)● Group think and Group polarization, risky and cautious shifts, (Janis,

Stoner, Sunstein, Eliaz Ray and Razin)

● Hidden profiles.● Interaction Process analysis (IPA), large groups base decisions

on smaller number of people. Bales (1950)● Caveat: (small) Groups make participants more rational? (Bornstein,

Bornstein and Yaniv, Cooper and Kagel...).

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Economics Vs Deliberative democracy

Deliberationis useful

Deliberationis useless

Economics

DeliberativeDemocracy

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Economics Vs Deliberative democracy

Deliberationis useful

Deliberationis useless

Economics

DeliberativeDemocracy

the weightof the ox

"should weuse onlinedeliberation?"

Empirical question!

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OK, so economics has something to

say about politics,

and there is a bit of debate betweeneconomists and

sociologists/philosophers…

BUT,

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But what does this all have to do withPolitical Economics?

...and what are you we actually going to doin this course?

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Outline of course

Introduction to game theory.

Social Choice/Preference aggregation.

Spatial models of majority rule.

Political Economics: A very subjective history.

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Outline of course

Voting and elections.

Lobbying and political influence.

Information aggregation and Crowdsourcing

Design of large-group deliberation platforms

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Logistics and Useful information

- Lecture notes and sets will be made available on the course Moodlewebpage.

- Some research papers will be assigned, for differentlectures, please check Moodle.

- Unfortunately, there is no textbook covering all the material in thecourse. The following books are recommended as supplements towhat is covered in the lectures.

1. Analyzing Politics , Rationality, Behavior and Institutions, K.A. Shepsle

and M.S. Bonchek. W. W. Norton & Company, New York, London.

2. Liberalism Against Populism , W.H. Riker, Waveland Press, ProspectHeights, Illinois.