Prof. Francesco Passarelli, Ph.D.

Loss Aversion in Politics

In a recent NBER paper with A. Alesina, Francesco Passarelli introduces loss aversion in a general political economy model. Policy reforms entail benefit and costs. Under loss aversion, the costs loom larger. The research shows that loss aversion yields several realistic predictions. For instance, young generations are more prone to changes than old generations, even when the utility functions of the two generations are the same.

Mr Passarelli is pioneering the small but growing literature on behavioural political economics. His studies show that psychological biases shape individual policy preferences and how they ultimately affect economic policies. His current research is focused on social norms. He assumes that individuals are intrinsically motivated to comply with a social norm. He studies how social consensus on the prescriptions of the norm affects the pull of the norm. Finally, Mr Passarelli is trying to explain populism as a collective emotional phenomenon. People feel resentment because past government policies let their expectations down. This feeling of resentment is subject to strategic complementarities. It may yield abrupt explosions of protest vote in cohesive groups with strong social ties.

Francesco Passarelli will be visiting CESifo from 2 to 27 July. He will deliver three CES Lectures entitled: “Behavioral Political Economy”.

Francesco Passarelli is Associate Professor of Economics at the University of Turin. He received his PhD in Economics from Bocconi University and an MA in Economics from Université Catholique de Louvain. He has been serving as Contract Professor at Bocconi University. He spent extended visiting periods at Dartmouth College and Harvard University.