Explaining the Anti-globalization Backlash Using Prospect Theory

• In Event: The Mass Politics of the Backlash against Globalization

Abstract

Why do the economically vulnerable vote for anti-globalization far right-wing parties instead of the left, which is more likely to support a social safety net via redistribution? We argue that the well established cognitive bias of individuals toward overweighting losses: loss aversion, unpacks this puzzle. We show in a game-theoretic model that those individuals who are just above the social-safety-net's reference point, such as the middle class, are more likely to be loss-averse. Counterintuitively, loss aversion in turn reduces the relative benefit of redistributive taxation for middle-income groups even if they are economically vulnerable, increasing the relative benefit of protectionism and anti-migration policies for these groups, boosting the appeal of right-wing parties. We also show that if politicians use the inherent process of bayesian updating associated to loss aversion to carry out manipulation of context via elite cues, they bolster the use of extreme anti-globalization policies in equilibrium. We demonstrate that loss aversion can be used to refine the notion of retrospective voting to understand political extremism, the anti-globalization backlash and the crisis of the welfare state.

Authors

• Carlos Felipe Balcazar, New York University

• In Young Park, Princeton University