Working Papers

Title: Behavioral Political Economy: Why Biases and Institutions Matter 

Abstract: Standard political economy commonly models citizens and politicians as rational actors. Behavioral economics challenges this benchmark by showing that decision-makers are biased. In commercial markets, explicit prices, competition, repeated feedback, and personal consequences often discipline biased behavior. We argue that these corrective mechanisms are weaker in the market for politics. Three structural conditions make biases especially persistent in politics. First, citizens have little incentive to acquire costly, accurate information because an individual is rarely pivotal. Second, political choices typically lack transparent prices, directly comparable alternatives, and contestable competition. Third, political decisions separate decision-makers, beneficiaries, and payers, creating externalities and weakening individual cost accountability. Under these conditions, biases amplify asymmetric information, weak political competition, and political externalities. They can therefore generate persistent distortions affecting entire populations and long-term policy trajectories. Institutions that improve information, comparability, contestability, and cost internalization are consequently essential for better political outcomes.