Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/201989 
Year of Publication: 
2019
Series/Report no.: 
CESifo Working Paper No. 7763
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
We focus on the preferences of an extremely salient group of highly-experienced individuals who are entrusted with making decisions that affect the lives of millions of their citizens, heads of government. We test for the presence of a fundamental behavioral bias, loss aversion, in the way heads of government choose decision rules for international organizations. If loss aversion disappears with experience and high-stakes it should not exhibited in this context. Loss averse leaders choose decision rules that oversupply negative (blocking) power at the expense of positive power (to initiate affirmative action), causing welfare losses through harmful policy persistence and reform deadlocks. We find evidence of significant loss aversion (λ = 4:4) in the Qualified Majority rule in the Treaty of Lisbon, when understood as a Nash bargaining outcome. World leaders may be more loss averse than the populous they represent.
Subjects: 
loss aversion
behavioral biases
constitutional design
voting
bargaining
voting power
EU Council of Ministers
JEL: 
D03
D81
D72
C78
Document Type: 
Working Paper
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