Hindsight-biased evaluation of political decision makers
Schuett,F. Wagner,A.K.
Schuett,F.
Wagner,A.K.
Abstract
Hindsight bias is a cognitive deficiency that leads people to overestimate ex post how predictable an event was. In this paper we develop a political-agency model in which voters are hindsight-biased and politicians differ in ability, defined as information concerning the optimal policy. When public information is not too accurate, low-ability politicians sometimes gamble on suboptimal policies: in an attempt to mimic the high-ability type, who has superior private information, they go against public information and choose a policy whose expected payoff to society is negative. We model hindsight bias as a memory imperfection that prevents voters from accessing their ex ante information about the state of the world. We show that the bias can act as a discipline device that reduces policy gambles and can therefore be welfare enhancing. Although it is well known that restrictions on information acquisition can be beneficial for a principal, our contribution is to show that a psychological bias can have such an effect.
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Date
2011
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Research Projects
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Schuett, F & Wagner, A K 2011, 'Hindsight-biased evaluation of political decision makers', Journal of Public Economics, vol. 95, no. 11-12, pp. 1621-1634. https://doi.org/10.1016/j.jpubeco.2011.04.001