False Consensus in Economic Agents

In an incentivized experiment we identify a powerful and ubiquitous bias: individuals regard their own characteristics and choices as more common than is the case. We establish this \false consensus" bias in terms of happiness, political stance, mobile phone brand and on the attitude to deference in a hypothetical restaurant choice, and show that it is not limited to the distribution of hard to observe characteristics and choices but also to weight and height. We also show that the bias is not driven by the fact that the tallest, happiest, most left/right-wing, etc. are more salient.false consensus; saliency; biased beliefs; happiness; politics; height; weight.

Growth expectations and banking system fragility in developing economies

The likelihood of a banking crisis appears to be higher in fast-developing countries. An explanation is provided in a Diamond and Dybvig framework, where banks are vehicles of consumption-smoothing, offering insurance against shocks to the consumption path of consumers. The theoretical model shows that the higher consumer growth expectations, the higher the optimal level of illiquidity insurance — even if it implies higher exposure bank runs. Empirical evidence supports this result and suggests that the effect of deposit interest rates on the probability of crisis is stronger after a period of high, uniterrupted growth. Policies of providing bail-outs or deposit insurance are demonstrated to be efficient even when they increase the fragility of the banking system.

Self-centred beliefs : an empirical approach

We perform an experiment designed to assess the accuracy of beliefs about distributions. The beliefs relate to behavior (mobile phone purchasing decisions, hypothetical restaurant choices), attitudes (happiness, politics) and observable characteristics (height, weight) and are typically formed through real world experiences. We find a powerful and ubiquitous bias in perceptions that is "self-centered" in the sense that an individual's beliefs about the population distribution changes with their own position in the distribution. In particular, those at extremes tend to perceive themselves as closer to the middle of the distribution than is the case. We discuss possible explanations for this bias

Life satisfaction, household income and personality traits

We show that personality traits mediate the effect of income on Life Satisfaction. The effect is strong in the case of Neuroticism, which measures the sensitivity to threat and punishment, in both the British Household Panel Survey and the German Socioeconomic Panel. Neuroticism increases the usually observed concavity of the relationship: Individuals with higher Neuroticism score enjoy income more than those with lower score if they are poorer and enjoy income less if they are richer. When the interaction between income and neuroticism is introduced, income does not have significant effect on his own. To interpret the results, we present a simple model where we assume that (i) Life Satisfaction is dependent from the gap between aspired and realized income, and this is modulated by Neuroticism and (ii) income increases in aspirations with a slope less than unity, so that the gap between aspired and realized income increase with aspirations. From the estimation of this model we argue that poorer tend to overshoot in their aspiration, while rich tend to under-shoot. The estimation of the model also shows substantial effect of traits on income

Why did (not) the East Extend the Franchise? Democracy, Intra-Elite Conflict and Risk Sharing

The process of enfranchisement is studied in a model of intra-elite conflict over the sharing of social surplus. The relative bargaining power of each elite, function of the surplus each elite is able to appropriate if the bargaining breaks down, is uncertain ex-ante. Accordingly, two competing elites can decide to enfranchise a weak but numerically large non-elite group in order to insure against future imbalances in relative bargaining power. The enfranchisement decision requires the non-elite group to be relatively weak and imperfectly informed about intra-elite bargaining power. Our results are robust to public good provision following enfranchisement when there is preference heterogeneity over the location of the public good across the different elites. A comparative analysis of the Indian Democracy is provided.

Democracy, Collective Action and Intra-Elite Conflict

This paper studies the conditions under which intra-elite conflict leads to a democ- racy. There are two risk averse elites competing for the appropriation of a unit of so- cial surplus, with an ex-ante uncertainty about their future relative bargaining power, and a large non-elite class unable to act collectively. We characterize a democracy as consistng of both franchise extension to, and lowering the cost of collective political activity for, individuals in the non-elite. In the absence of democracy, the stronger elite is always able to appropriate the entire surplus. We show that in a democ- racy, the newly enfranchised non-elite organize and always prefer to form a coalition with weaker elite against the stronger resulting in a more balanced surplus allocation between the two elites. Accordingly, the elites choose to democratize if they are sufficiently risk averse. Our formal analysis can account for stylized facts that emerge from a comparative analysis of Indian and Western European democracies.

Self-Centered Beliefs : An Empirical Approach

We perform an experiment designed to assess the accuracy of beliefs about distributions. The beliefs relate to behavior (mobile phone purchasing decisions, hypothetical restaurant choices), attitudes (happiness, politics) and observable characteristics (height, weight) and are typically formed through real world experiences. We nd a powerful and ubiquitous bias in perceptions that is \self-centered" in the sense that an individual's beliefs about the population distribution changes with their own position in the distribution. In particular, those at extremes tend to perceive themselves as closer to the middle of the distribution than is the case. We discuss possible explanations for this bias. Key words: subjective beliefs ; attitudes ; observable characteristics ; self-centered bias JEL classification: D03 ; C83 ; D84

False Consensus in Economic Agents

In an incentivized experiment we identify a powerful and ubiquitous bias: individuals regard their own characteristics and choices as more common than is the case. We establish this "false consensus" bias in terms of happiness, political stance, mobile phone brand and on the attitude to deference in a hypothetical restaurant choice, and show that it is not limited to the distribution of hard to observe characteristics and choices but also to weight and height. We also show that the bias is not driven by the fact that the tallest, happiest, most left/right-wing, etc. are more salient. Key words: false consensus ; saliency ; biased beliefs ; happiness ; politics ; height, weight. JEL classification: D03 ; C83 ; D84

Enfranchisement, Intra-Elite Conflict and Bargaining

Does power sharing between competing elites result in franchise extension to non-elites? In this paper, we argue that competing, risk-averse elites will enfranchise non-elites as in-surance against future, uncertain imbalances in relative bargaining power. We show that negligibly small changes in the bargaining power of non-elites, conditional on enfranchisment, via coalition formation, constrains the bargaining power of the stronger elite and result in discontinuous changes in equilibrium surplus division. Our results are robust to public good provision following enfranchisement when there is reference heterogeneity over the location of the public good across the different elites. We conclude with a comparative analysis of Indian democracy and show that our model is able to account for some of the distinctive features of Indian democracy.enfranchisemnt ; elite ; non-elites ; conflict ; bargaining ; risk-sharing ; Indian democracy

The Transition to Democracy : Collective Action and Intra-elite Confict

This paper studies how intra-elite confict results in transition to democracy, characterized as both franchise extension to, and lowering the individual cost of collective political action for, an initially disorganized non-elite. Two risk averse elites compete for the appropriation of a unit of social surplus with initial uncertainty about their future relative bargaining power. Both elements of a democracy are necessary to ensure that the two elites credibly commit to a mutually fairer share of the surplus and we derive sufficient conditions for democracy to emerge in equilibrium. Our formal analysis accounts for stylized facts that emerge from an analysis of Indian and West European democracies.