Prospect Theory and Political Decision-Making

Prospect theory has been adopted unevenly across different domains of political decision-making. Research drawing on prospect theory has contributed to important advances in the understanding of processes of elite decision-making in foreign policy and domestic politics. Political scientists have also contributed several important extensions of and qualifications to prospect theory that augment the original theoretical framework and are applicable in other disciplines. The next wave of research needs to be far more careful in specifying the scope conditions that have been the focus of research in behavioral economics. Scholars will also have to pay closer attention to the distribution of probability estimates across options; whether political decision makers are choosing among risky/certain bimodal distributions, high-probability distributions, high/low distributions, or low-probability distributions matters to the predicted impact of framing effects. Finally, studies will need to pay greater attention to the information political decision makers are given and to the impact of group dynamics in political settings. Identifying the scope conditions of prospect theory in the context of political and policymaking processes over time can make a significant contribution to the explanation of both domestic and foreign policy decisions, fill a gap between individual-level choice and institutionally based outcomes, and provide a stronger behavioral foundation for understanding the dynamics of multiactor policy choice.

Keywords: prospect theory, elite decision-making, probability distributions, group dynamics, framing effects, cognitive bias, elite behaviour