EC302 Lecture 1

EC302 Political Economics
Lecture 1- Introduction
October 2015
About me:
Ronny Razin
[email protected]
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?

participants
Is it a good idea?
1. Information aggregation.
2. Preference aggregation.
3. Legitimacy, Participation and engagement.

participants
Is it a good idea?
Economics
1. Information aggregation.
2. Preference aggregation.
3. Legitimacy, Participation and engagement.
Deliberative Democracy

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

participants
Is it a good idea?
A Mechanism design approach to group decision making

- Sequentiality
- Competition
- Auctions

participants
Is it a good idea?
What are and what is missing in our models of group decision
processes?
Deliberative democracy
Habermas, Theory of Communicative Action (1981)
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.
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.
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.
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?
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.
The information aggregation

approach to group decision
making
Legitimacy,
participation and
engagement
Preference aggregation
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
The crowd and the Ox
What would have happened if we let these 800

villagers deliberate about the ox first?
The moral of the story
To aggregate information you want to elicit the

independent information that the crowd has.
Deliberation might hamper this objective.
Research questions
Can large elections aggregate information

efficiently?
What is the importance of formal voting rules?
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.
Condorcet's jury theorem
Theorem:
as the number of Jurors increases, the probability that they choose
the right thing converges to one!
Accounting for incentives
why would someone not vote sincerely?

- different preferences.
- Jurors have different notions of reasonable doubt.
- Informational externalities, The swing voters curse!
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)
Results
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!
Results
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?
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
Never underestimate the power

of stupid people in large groups.
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
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
the weight
of the ox
Deliberation
is useless
Deliberation
is useful
"should we
use online
deliberation?"
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.

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EC302 Political Economics

Why Political Economics?

Why Political Economics?

Political organizations online

Other organizations online

Online Commercial companies? Crowd-ownership? Crowdgovernance?

Online deliberation with large numbers of

Online deliberation with large numbers of

Online deliberation with large numbers of

Online deliberation with large numbers of

Online deliberation with large numbers of

A Mechanism design approach to group decision making

Online deliberation with large numbers of

Habermas, Theory of Communicative Action (1981)

Authentic deliberation is deliberation among decision-makers that

Is it purely a Normative theory?

Economics of group decision making

Economics of group decision making

The information aggregation

Economics of group decision making

The information aggregation

What would have happened if we let these 800

To aggregate information you want to elicit the

Can large elections aggregate information

Marquis de Condorcet in his 1785 work Essay on the Application

why would someone not vote sincerely?

Information aggregation holds even when taking account of incentives.

(Fedderesen and Pesendorfer, Austen-Smith and Banks)

Information aggregation holds even when taking account of incentives.

(Fedderesen and Pesendorfer, Austen-Smith and Banks)

Anecdote: The Talmud rules that a unanimous verdict by the Sanhedrin

Information aggregation holds even when taking account of incentives.

(Fedderesen and Pesendorfer, Austen-Smith and Banks)

Never underestimate the power

Economics Vs Deliberative democracy

Economics Vs Deliberative democracy

"should we use online deliberation in politics?"

Economics Vs Deliberative democracy

Economics Vs Deliberative democracy

OK, so economics has something to

But what does this all have to do with

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

Introduction to game theory.

Voting and elections.

Logistics and Useful information

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

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