Misconceptions and Political Outcomes

A large recent literature shows that strategic interactions among actors with conflicting objectives can produce inefficient political decisions. This paper investigates an alternative explanation of such decisions: if individuals' errors in assessing the likely effects of proposed policies are correlated, democratic decision-making can produce inefficient outcomes even in the absence of distributional conflicts or heterogeneous preferences. Choosing candidates from among the best informed members of the population does not remedy the problems created by such errors, but subsidizing information and exposing representatives to information after their election do. Concentration of power has ambiguous effects. Finally, the presence of correlated errors tends to create multiple equilibria in political institutions.