Risk Preferences and Outcome Bias in the Delegation Process

As demonstrated by the COVID-19 pandemic, many political decisions involve a high level of uncertainty. Policy outcomes are subject to a variety of factors that lie beyond the scope of influence and cognition of the decision-makers and are thus – at least from the point of view of the politician – subject to chance. However, when evaluating the past performance of politicians, several studies suggest that voters tend to focus on policy outcomes rather than on the political decisions and the circumstances under which they were taken, leading to less than optimal voting decisions. In this study, we examine this so-called outcome bias and its effect on the delegation process. In an online experiment, subjects assigned the role of a politician decide how much to invest in a risky policy, whereas subjects assigned the role of a voter decide whether to re-elect the politicians based on the politicians’ decision and the outcome. The treatments, which vary the potential reward and risk of the policy as well as information about the outcome of the risk decision, allow us to assess whether risk preferences and outcome bias affect voters’ decisions and whether politicians are responsive to voters’ risk preferences and biases. We find evidence that politicians adapt to the assumed risk preferences of the voters and that voters are significantly more likely to elect politicians who advocate for policies that are closer to the voters’ risk preferences. Our results provide (weak) support for the existence of an outcome bias among voters. Furthermore, we find a strong incumbency effect, with voters being more likely to re-elect incumbents even if they are farther away from their own risk preferences than potential other candidates.