Expected utility theory is widely used to formally model decisions in situations where outcomes are uncertain. As uncertainty is arguably commonplace in political decisions, being able to take that uncertainty into account is of great importance when building useful models and interpreting empirical results. Expected utility theory has provided possible explanations for a host of phenomena, from the failure of the median voter theorem to the making of vague campaign promises and the delegation of policymaking.
A good expected utility model may provide alternative explanations for empirical phenomena and can structure reasoning about the effect of political actors’ goals, circumstances, and beliefs on their behavior. For example, expected utility theory shows that whether the median voter theorem can be expected to hold or not depends on candidates’ goals (office, policy, or vote seeking), and the nature of their uncertainty about voters. In this way expected utility theory can help empirical researchers derive hypotheses and guide them towards the data required to exclude alternative explanations.
Expected utility has been especially successful in spatial voting models, but the range of topics to which it can be applied is far broader. Applications to pivotal voting or politicians’ redistribution decisions show this wider value. However, there is also a range of promising topics that have received ample attention from empirical researchers, but that have so far been largely ignored by theorists applying expected utility theory.
Although expected utility theory has its limitations, more modern theories that build on the expected utility framework, such as prospect theory, can help overcome these limitations. Notably these extensions rely on the same modeling techniques as expected utility theory and can similarly elucidate the mechanisms that may explain empirical phenomena. This structured way of thinking about behavior under uncertainty is the main benefit provided by both expected utility theory and its extensions.
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Expected Utility and Political Decision Making
Jona Linde
Article
Flood Damage Assessments: Theory and Evidence From the United States
Laura Bakkensen and Logan Blair
Flooding remains one of the globe’s most devastating natural hazards and a leading driver of natural disaster losses across many countries, including the United States. As such, a rich and growing literature aims to better understand, model, and assess flood losses. Several major theoretical and empirical themes emerge from the literature. Fundamental to the flood damage assessment literature are definitions of flood damage, including a typology of flood damage, such as direct and indirect losses. In addition, the literature theoretically and empirically assesses major determinants of flood damage including hydrological factors, measurement of the physical features in harm’s way, as well as understanding and modeling protective activities, such as flood risk mitigation and adaptation, that all co-determine the overall flood losses. From there, common methods to quantify flood damage take these factors as inputs, modeling hydrological risk, exposure, and vulnerability into quantifiable flood loss estimates through a flood damage function, and include both ex ante expected loss assessments and ex post event-specific analyses. To do so, high-quality data are key across all model steps and can be found across a variety of sources. Early 21st-century advancements in spatial data and remote sensing push the literature forward. While topics and themes apply more generally to flood damage across the globe, examples from the United States illustrate key topics. Understanding main themes and insights in this important research area is critical for researchers, policy-makers, and practitioners to better understand, utilize, and extend existing flood damage assessment literatures in order to lessen or even prevent future tragedy.
Article
Strategic Voting Versus Sincere Voting
Damien Bol and Tom Verthé
People do not always vote for the party that they like the most. Sometimes, they choose to vote for another one because they want to maximize their influence on the outcome of the election. This behavior driven by strategic considerations is often labeled as “strategic voting.” It is opposed to “sincere voting,” which refers to the act of voting for one’s favorite party.
Strategic voting can take different forms. It can consist in deserting a small party for a bigger one that has more chances of forming the government, or to the contrary, deserting a big party for a smaller one in order to send a signal to the political class. More importantly the strategies employed by voters differ across electoral systems. The presence of frequent government coalitions in proportional representation systems gives different opportunities, or ways, for people to influence the electoral outcome with their vote. In total, the literature identifies four main forms of strategic voting. Some of them are specific to some electoral systems; others apply to all.
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Sunk Costs and Political Decision Making
Charles A. Miller
The “sunk costs fallacy” is a popular import into political science from organizational psychology and behavioral economics. The fallacy is classically defined as a situation in which decision-makers escalate commitment to an apparently failing project in order to “recoup” the costs they have already sunk into it. The phenomenon is often framed as a good example of how real decision-making departs from the assumption of forward-looking rationality which underpins traditional approaches to understanding politics. Researchers have proposed a number of different psychological drivers for the fallacy, such as cognitive dissonance reduction, and there is experimental and observational evidence that it accurately characterizes decision-making in certain contexts. However, there is significant skepticism about the fallacy in many social sciences, with critics arguing that there are better forward-looking rational explanations for decisions apparently driven by a desire to recoup sunk costs – among them reputational concerns, option values and agency problems. Critics have also noted that in practical situations sunk costs are informative both about decision makers’ intrinsic valuation for the issue and the prospects for success, making it hard to discern a separate role for sunk costs empirically. To address these concerns, empirical researchers have employed a number of strategies, especially leveraging natural experiments in certain non-political decision making contexts such as sports or business, in order to isolate the effects of sunk costs per se from other considerations. In doing so, they have found mixed support for the fallacy. Research has also shown that the prevalence of the sunk costs fallacy may be moderated by a number of factors, including the locus of decision-making, framing, and national context. These provide the basis for suggestions for future research.
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Capitalist Peace Theory: A Critical Appraisal
Gerald Schneider
Capitalist peace theory (CPT) has gained considerable attention in international relations theory and the conflict literature. Its proponents maintain that a capitalist organization of an economy pacifies states internally and externally. They portray CPT either as a complement to or a substitute for other liberal explanations, such as the democratic peace thesis, but disagree about the facet of capitalism that is supposed to reduce the risk of political violence. Key contributions have identified three main drivers of the capitalist peace phenomenon: the fiscal constraints that a laissez-faire regimen puts on potentially aggressive governments, the mollifying norms that a capitalist organization creates, and the increased ability of capitalist governments to signal their intentions effectively in a confrontation with an adversary. CPT should be based on a narrow definition of capitalism and should scrutinize motives and constraints of the main actors more deeply. Future contributions to the CPT literature should pay close attention to classic theories of capitalism, which all considered individual risk taking and the dramatic changes between booms and busts to be key constitutive features of this form of economic governance. Finally, empirical tests of the proposed causal mechanism should rely on data sets in which capitalists appear as actors and not as “structures.” If the literature takes these objections seriously, CPT could establish itself as central theory of peace and war in two respects: First, it could serve as an antidote to “critical” approaches on the far left or far right that see in capitalism a source of conflict rather than of peace. Second, it could become an important complement to commercial liberalism that stresses the external openness rather than the internal freedoms as an economic cause of peace and that particularly sees trade and foreign direct investment as pacifying forces.
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Comparative Political Regimes: Consensus and Majoritarian Democracy
Matthijs Bogaards
Ever since Aristotle, the comparative study of political regimes and their performance has relied on classifications and typologies. The study of democracy today has been influenced heavily by Arend Lijphart’s typology of consensus versus majoritarian democracy. Scholars have applied it to more than 100 countries and sought to demonstrate its impact on no less than 70 dependent variables. This paper summarizes our knowledge about the origins, functioning, and consequences of two basic types of democracy: those that concentrate power and those that share and divide power. In doing so, it will review the experience of established democracies and question the applicability of received wisdom to new democracies.