Risk Preferences in the Delegation Process

Political decisions usually involve risks regarding potential outcomes. In an ideal representative system, voters should therefore evaluate politicians not only according to the policies they support, but also according to their inclination to take risks. In this study, we examine whether risk preferences affect voting decisions in an incentivized online experiment. Subjects assigned the role of politicians decide for the voters how much to invest in a risky policy, whereas subjects assigned the role of voters learn about the risk profiles of the politicians and decide whether to re-elect the incumbent or to elect the challenger. The treatments vary the risk and potential reward of the policy politicians can implement as well as the information voters receive about the consequences of a politician’s decision. We find that voters are significantly more likely to elect politicians who propose policies that are in line with the voters’ risk preferences and that politicians adapt to the assumed risk preferences of the voters. If a voter learns that the politician’s decision led to a negative outcome, despite a low probability of such an outcome, she is less likely to re-elect this politician. Furthermore, the results suggest an incumbency advantage independent of institutional advantages.