Populism, Group Thinking and Banking Policy

17 Pages Posted: 29 Feb 2020

See all articles by Federico Favaretto

Federico Favaretto

Bocconi University - BAFFI Center on International Markets, Money, and Regulation; Boston College

Donato Masciandaro

Bocconi University - Department of Economics

Date Written: February 2020

Abstract

This paper builds a model of populism called Democratic Rioting in which citizens – i.e. the poor and the rich - are assumed to be heavily influenced by psychological group dynamics that result from banking shocks. We highlight a display of anger that is channelled through an election instead of in the streets. In turn the anger – a self-serving bias – can be influenced by non-financial news about immigration, welfare plans and housing plans. Therefore after a banking shock the consensus on a myopic populist policy can depend on many issues that have nothing to do with the bailout decision itself. We describe a mechanism that can be applied to the aftermath of both the Great Recession and the Great Depression.

Keywords: Populism, Political Economics, Behavioural economics, Financial inequality, Banking policy

JEL Classification: D72, D78, E31, E52, E58, E62, E71

Suggested Citation

Favaretto, Federico and Masciandaro, Donato, Populism, Group Thinking and Banking Policy (February 2020). BAFFI CAREFIN Centre Research Paper No. 2020-133, Available at SSRN: https://ssrn.com/abstract=3545223 or http://dx.doi.org/10.2139/ssrn.3545223

Federico Favaretto

Bocconi University - BAFFI Center on International Markets, Money, and Regulation ( email )

Milano, 20136
Italy

Boston College ( email )

140 Commonwealth Avenue
Chestnut Hill, MA 02467
United States

Donato Masciandaro (Contact Author)

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

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