Relative satisfaction and policy preference: can we rationalize polarization?

Abstract

This paper explores how identity shapes feelings about economic shocks and support to public policies. To do so, we study how people’s feelings about negative shocks vary when they discover some characteristic of the individual that receives the shock. Then, we examine how these feelings are associated with support to public policies. Private and third sector employees tend to feel better about someone being laid-off if they find out that this person worked in the public sector and that public sector employment has been performing relatively better than the others. Women tend to feel better about an individual suffering a wage-cut if they find out that the individual is a man and that there is a wage gap in the labour market that favours men. We also find that people’s feelings can be associated with support to public policies. Respondents feeling better about the negative shocks are more likely to support policies reducing public employment and cutting men wages. In this way, rational choices based on group identity seem to complement well documented biases such as motivated reasoning and confirmation bias to explain polarization in policy preferences.

Keywords: Identity Economics; Polarization; Shocks; Satisfaction.