Prospect Theory and Political Decision Making

Risk is a central feature of political decision making. Prospect theory, an empirically correct theory of choice under risk that deals precisely with this condition, therefore seems to have much to offer political science. Prospect theory's central finding is that individuals’ attitude toward risk depends on whether they face losses or gains. Confronting gains, individuals are risk averse in their decision making; confronting losses, they are risk accepting. Where do these preferences come from? Do they also hold for collective decision making? How can prospect theory help us to solve puzzles in political science? This article addresses these questions by discussing some advances in evolutionary biology, behavioural economics, psychology, neuro-economics and political science. The article shows that there is increasing evidence that prospect theory preferences have an evolutionary origin and that these preferences extend to collective decision making. Moreover, it demonstrates that political science can indeed gain from applying prospect theory, as insights from prospect theory help to solve puzzles such as why some governments pursue electorally risky welfare state reform but others do not.