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

Online deliberation with large numbers of

participants
Is it a good idea?

Economics

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

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

Deliberative democracy

Habermas, Theory of Communicative Action (1981)

Deliberative democracy
For a democratic decision to be legitimate, 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
Fishkins 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.
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
Other Models and common themes
Cohen (ideal deliberation), Guttman and Thompson (reasoning
based)
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.

Deliberative democracy
An 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?

Deliberative democracy
In practice
Occupy movement.
Deliberative polls.

Economics of group decision making

Rational Based.
The importance of institutions. (culture as equilibrium).
Information aggregation.
Preference aggregation.
Legitimacy, participation and engagement.

Economics of group decision making

The information aggregation

approach to group decision
making

Legitimacy,
participation and
engagement

Preference aggregation

Economics of group decision making

The information aggregation

approach to group decision
making

The voting
paradox

Legitimacy,
participation and
engagement

Preference aggregation

Arrow's
Impossibility
Theorem

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?

Information aggregation
The moral of the story

To aggregate information you want to elicit the

independent information that the crowd has.
Deliberation might hamper this objective.

Information aggregation
Research questions

Can large elections aggregate information

efficiently?
What is the importance of formal voting rules?

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.
Condorcets 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.
no deliberation
3. Jurors vote, to acquit or convict.
4. Jurors vote sincerely.
no accounting for incentives.

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

Information aggregation
Accounting for incentives

why would someone not vote sincerely?

- different preferences.
- Jurors have different notions of reasonable doubt.
- Informational externalities, The swing voters curse!

Information aggregation
Results

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)

Information aggregation
Results

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 be
exonerated!

Information aggregation
Results

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?

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

Deliberation
A Benchmark
Adding a stage of deliberation before the voting.
Results:
1. Adding deliberation does not increase welfare and sometimes
might 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)

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

Deliberation
Further results: Hazards of Deliberation

Never underestimate the power

of stupid people in large groups.

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...).

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

"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, but people don't have the time to commit to informed
direct democracy...

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

OK, so economics has something to

say about politics,
and there is a bit of debate between
economists and
sociologists/philosophers

BUT,

But what does this all have to do with

Political Economics?

...and what are you we actually going to do

in this course?

Outline of course

Introduction to game theory.

Social Choice/Preference aggregation.
Spatial models of majority rule.
Political Economics: A very subjective history.

Outline of course

Voting and elections.

Lobbying and political influence.
Information aggregation and Crowdsourcing
Design of large-group deliberation platforms

Logistics and Useful information

- Lecture notes and sets will be made available on the course Moodle
webpage.
- Some research papers will be assigned, for different
lectures, please check Moodle.
- Unfortunately, there is no textbook covering all the material in the
course. The following books are recommended as supplements to
what 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, Prospect
Heights, Illinois.