Clever political leaders take account of the fact that policy changes may influence people’s
preferences in ways that they could not have foreseen before the policy shift. These
leaders run for office on a platform that appeals to the public at election time but may
eventually carry out a very different policy, which – once implemented – in itself changes
public opinion to acceptance.
These are the conclusions of new economic research by Chaim Fershtman and Aviad
Heifetz, published in the January 2006 issue of the Economic Journal. As an example of
the phenomenon, consider the Israeli prime minister Ariel Sharon, who in 2003 got reelected
to continue waging a tough military confrontation against the Palestinian intifada.
After two years in office and while still enjoying wide public support, Sharon introduced a
sharp turn of policy. The Israeli Defence Forces withdrew completely from the Gaza Strip,
and all of the Israeli settlements there (as well as four others in northern Samaria) were
dismantled.
When Sharon announced this plan, it faced vocal and well-organised opposition, both
inside the PM’s own party, the Likud, as well as by substantial threads of the Israeli public.
But once the plan had been successfully carried out, a dramatic change took place in both
arenas.
The ‘rebels’ inside the Likud party begged Sharon to stay and continue leading the party.
And when Sharon decided nevertheless to quit in order to lead his new party, Kadima,
opinion polls immediately predicted that it would win the forthcoming elections.
How can a leader win the elections with one platform but maintain leadership by an
essential deviation from it? Fershtman and Heifetz’s article – Read My Lips, Watch for
Leaps – offers a novel insight into this and similar conundrums.
The idea of ‘endogenous preference adjustment’ is not new. It is grounded in a voluminous
recent literature at the interface of Social Psychology, Behavioral Economics and Economic
Theory. But this article is the first to apply this idea rigorously as a building block into a
model of political competition.
The article presents a general model of endogenous preferences, by which the
fundamental preferences of individuals are not necessarily reflected intact by their observed
choices. Rather, choices are affected by emotional biases.
Such biases make individual choices sub-optimal given the choices of others, but at the
same time the biases themselves – when observed by others – can in the first place
influence others’ choices favourably.
In other words, observed individual biases (like an intimidating character or a cooperative
character) can serve the individual as an unconscious commitment device. The deviation
from optimal behaviour (vis-à-vis others’ choices) implied by this character may be more
than compensated by the influence of this character on the equilibrium choices made by
others.
The theory thus asserts that the direction and extent of biases are not arbitrary, but are
rather unconsciously tuned so as to serve the individual best given the distribution of
preferences, characters and actions in the society. And if a policy shift changes the nature
of interaction between the individuals in the society, both characters and choices may
adjust as well.
This theory of endogenous characters is integrated into a full-fledged model of political
competition. One particular example, in which the policy variable involves education
subsidies, is explored in detail. The example demonstrates how endogenous preference
adjustment can lead by itself to political cycles across election rounds, as well as to gaps
between platform promises and eventual policy execution.
The article thus sets a new standard for a systematic investigation of the feedback between
policy design and the multi-dimensional aspects of human character and behaviour.
ENDS
Notes for editors: ‘Read My Lips, Watch for Leaps: Preference Equilibrium and Political
Instability’ by Chaim Fershtman and Aviad Heifetz is published in the January 2006 issue of
the Economic Journal.
Chaim Fershtman is at the Eitan Berglas School of Economics, Tel Aviv University. Aviad
Heifetz is at the Open University of Israel.
For further information: contact Chaim Fershtman on +972-3-640-7167 (email:
fersht@post.tau.ac.il); or RES Media Consultant Romesh Vaitilingam on 0117-983-9770 or
07768-661095 (email: romesh@compuserve.com).