Lecture 21: political economy

Majority voting

Assume throughout
Odd number of voters, no abstentions (so no ties)
Open agenda (all alternatives are considered)

Suppose 3 voters (Mankiw calls them voter types and has different numbers of each type; we assume
equal numbers of each type to start because it’s easier)

Majority voting over 2 policy alternatives, Policy A and Policy B

Voter preference rankings

Ranking \ Voter Type 1 Type 2 Type 3

1 st A B A
2 nd B A B

This is easy: Types 1 and 3 vote for A; Type 2 votes for B. A wins by a vote of 2 to 1.

It is in each voter's interest to vote honestly. Lying about one's preferences will either have no effect (if
say Type 2 lies and votes A rather than their true preference B) or lead to a worse outcome (if say Type 3
lies and votes B rather than their true preference A). In a vote between 2 alternatives, the best strategy
is to vote honestly.
◀ | ▶
2 Lecture21.nb

Efficiency of majority voting equilibrium

Voter preference rankings

Ranking \ Voter Type 1 Type 2 Type 3

1 st A B A
2 nd B A B

Majority voting equilibrium: A wins by a vote of 2 to 1.

Is the majority voting outcome efficient? Does it maximize total surplus?

Consider 2 configurations of surplus consistent with the rankings above. Table entries are the individ-
ual surpluses if the policy is implemented. So in the first table, Type 1 ranks policy A higher than B
because the surplus with A is greater than the surplus with B. Total surplus is the sum across voters of
their individual surpluses.

Policy Type 1 Type 2 Type 3 Total surplus

A 120 40 90 250
B 60 70 50 180

The majority voting equilibrium policy A maximizes total surplus in the first table.

Policy Type 1 Type 2 Type 3 Total surplus

A 120 40 90 250
B 90 150 60 300

In the second table, majority voting chooses policy A but total surplus is greater with policy B.

The problem is that voting does not take intensity of preference into account. There are unrealized
gains from trade.
◀ | ▶
 Lecture21.nb 3

Condorcet winner

Suppose there are 3 policy alternatives with the rankings

Ranking Type 1 Type 2 Type 3

1 st A B A
2 nd B C C
3 rd C A B

Consider the pairwise votes

A v B: T1 & T3 vote A, T2 votes B. A wins.

B v C: T1 & T2 vote B, T3 votes C. B wins.
C v A: T1 & T3 vote A, T2 votes C. A wins.

A is called a Condorcet winner: A beats each alternative in a pairwise vote.

Regardless of the order in which the alternatives are proposed, once A is on the agenda, it cannot be
displaced in a majority vote.

In the graph: Alternatives are nodes. Arrows point to the winner in a pairwise vote.
Majority voting with a Condorcet winner

b a

◀ | ▶
4 Lecture21.nb

Condorcet's paradox
Suppose there are 3 policy alternatives, this time with the rankings

Ranking Type 1 Type 2 Type 3

1 st A B C
2 nd B C A
3 rd C A B

Consider the pairwise votes

A v B: T1 & T3 vote A, T2 votes B. A wins.

B v C: T1 & T2 vote B, T3 votes C. B wins.
C v A: T2 & T3 vote C, T1 votes A. C wins.

There is no Condorcet winner that beats each alternative in a pairwise vote.

Call this a cyclical majority - the graph shows why.

Transitivity requires that: If (A beats B) & (B beats C) Then (A beats C).

But we have (C beats A).

Majority voting might violate a basic requirement of rational choice. Whether it does or not depends on
voter rankings - the point is that we cannot be sure it will work well.
 Lecture21.nb 5

Condorcet paradox: cyclical majority

b a

◀ | ▶
6 Lecture21.nb

Arrow's impossibility theorem

Requirements for a good social choice procedure

1. Unrestricted domain: any pattern of policies and preference rankings is allowed

2. Unanimity: if A is unanimously ranked above B, then A will be chosen over B

3. Independent of irrelevant alternatives: the outcome of a choice between A and B does not depend on
whether alternative C is (or is not) available

4. Transitivity: if A beats B, and B beats C, then A beats C

5. No dictator: no one gets their preference regardless of what other voters prefer

Arrow's possibility theorem. The only social choice procedure meeting the first 4 requirements is to
appoint a dictator.
(It is easy to see why a dictator works. 1. No one but the dictator matters. 2. The dictator agrees. 3. The
dictator is not fooled by irrelevant alternatives. 4. If the dictator is rational the dictator's ranking is
transitive.

Arrow's impossibility theorem. No social choice procedure meets all 5 requirements.

Note. We might have some additional properties that we would like a social choice procedure to meet.
For example, principles of equity, justice, morality, liberty, .... But it is already hopeless.

Implications. Every social choice procedure (majority voting, rank order voting, plurality voting, propor-
tional representation, ...) will have flaws. One consequence is that social choice procedures are vulnera-
ble to strategic behaviour. Much strategic thinking goes into exploiting this insight.

◀ | ▶
 Lecture21.nb 7

Multi-peaked preferences
Replace the unrestricted domain assumption with:
Policy alternatives can be ordered along a line (e.g., spending on schools or police)
In the graph below, A < B < C

Graph the Condorcet paradox preferences

T1 and T2 have single peaked preferences

T3 does not have single peaked preferences

Suppose we regard voter T3 as "unusual" - their preferences rank moderate school budgets below
small school budgets and that below large school budgets.

Preferences for the Condorcet paradox example

utility

T2

T3

T1

A B C
school budget

The median voter theorem adds a further restriction on the domain: Preferences are single peaked.
This rules out preferences like T3.
◀ | ▶
8 Lecture21.nb

Median voter theorem

Replace the unrestricted domain assumption with:
Policy alternatives can be ordered along a line (e.g., spending on schools or police)
Individual preferences are single peaked

Claim: The majority voting equilibrium is the policy preferred by the median voter: the policy preferred
by the median voter is the Condorcet winner.

Single peaked means each voter has a single preferred policy and alternatives further from the peak
policy are ranked lower than policies closer to the peak policy.

Voter i has single peaked preferences

Voter i ranks policies further to Voter i ranks policies further to

the left of Pi as increasingly worse the right of Pi as increasingly worse

Pi

Voter i ' s preferred policy

 Lecture21.nb 9

Median voter equilibrium with 5 voters

P3 is the median policy

- a Condorcet winner -
the voter with the ID number 3 is the median voter

P1 P2 P3 P4 P5

◀ | ▶
10 Lecture21.nb

Strategic agenda setting

Suppose we have the rankings that lead to Condorcet's paradox

Ranking Type 1 Type 2 Type 3

1 st A B C
2 nd B C A
3 rd C A B

Recall the pairwise votes

A v B: T1 & T3 vote A, T2 votes B. A wins.

B v C: T1 & T2 vote B, T3 votes C. B wins.
C v A: T2 & T3 vote C, T1 votes A. C wins.

Suppose that there is a large and equal number of each voter type so that strategic agreements among
voters are not feasible

Suppose that T1 somehow gains control of the agenda.

T1 prefers outcome A.
T1 sets the agenda: B v C, winner v A.
Voting: B wins the first vote. Then A beats B in the second vote.

Agenda control confers power.

◀ | ▶
 Lecture21.nb 11

Strategic voting
We have the rankings that lead to Condorcet's paradox

Ranking Type 1 Type 2 Type 3

1 st A B C
2 nd B C A
3 rd C A B

Recall the pairwise votes

A v B: T1 & T3 vote A, T2 votes B. A wins.

B v C: T1 & T2 vote B, T3 votes C. B wins.
C v A: T2 & T3 vote C, T1 votes A. C wins.

Suppose that there is a small number of each voter type so that voters are aware of their impact on the
outcome. Easiest to think of 1 voter of each type.

As before: Suppose that T1 gains control of the agenda.

T1 prefers outcome A.
T1 sets the agenda: B v C, winner v A.
Voting: B wins the first vote. Then A beats B in the second vote.

This is the outcome if each voter votes their ranking honestly. However, if each understands the pro-
cess, then it might be that they have an incentive to vote strategically.
◀ | ▶
12 Lecture21.nb

Agenda setting with strategic voting

Strategy: We know that if there are only 2 alternatives in a single vote, then voters can do no better
than vote their true rankings. This means that in the second vote, winner v A, there is no scope for
strategic voting. If strategic voting is to create gains for one of the types, it must be in the first round
vote B v C.

From the table: The outcome of honest voting results in T2's lowest ranked outcome. Suppose that T1
& T3 vote honestly, but T2 is strategic. T2 knows that if B wins the first vote, then it will lose to A in the
final round. Suppose T2 strategically votes C (and not their true preference B) in the first vote.

Graph: The first vote chooses the branch along which the final vote is taken. Final vote chooses the end
point from the final pair of alternatives.

Strategic voting on T1's agenda: B v C, winner v A.

First vote: B v C: T2 (strategic) & T3 vote C, T1 votes B. C wins.

Final vote: C v A: T2 (honest) & T3 vote C, T1 votes A. C wins.

Outcome: T1 set an agenda based on honest voting. Strategic voting by T2 resulted in T1 getting their
least preferred outcome.

Check: Is this a Nash Equilibrium with this agenda? T1 is in the minority on both votes and cannot
change the outcome by voting differently. The critical first vote is decided by T2 & T3. T3 has no incen-
tive to change their vote since the outcome is their first preference.

Exercise: What agenda should T1 set if strategic voting seems likely?

 Lecture21.nb 13

Type 1 sets agenda c v b, winner v a

with strategic voting

cb

b wins c wins

ba ca

a c
14 Lecture21.nb

Out[$ ]=

Connecting MVT and NE

Nash Equilibrium. (1) Each player’s action is their best choice given the action chosen by the other
player. For example, suppose that Player 1’s best choice is Action A if Player 2 chooses action B.
(2) The chosen actions are mutually consistent. Continuing the example: if Player 2’s best choice is
Action B when Player 1 chooses action A, then each player’s choices are based on correct expectations
of their rival’s choices. We have a Nash equilibrium: Player 1 chooses A believing that Player 2 will
choose B, and Player 2 chooses B if they believe that Player 1 will choose A.

Median Voter Equilibrium. If voters have single peaked preferences over a single issue (e.g., spending
on police), then the majority voting equilibrium will be the outcome preferred by the median voter.
Given the median voter’s preference, there will be a majority preferring that outcome to any other
option. The median voter’s preferred outcome is a Condorcet winner: once it is on the agenda, it beats
all alternatives in a majority vote.
 Lecture21.nb 15

j y

Imagine that there are 11 voters with preferred outcomes numbered 0, 1, 2, …, 10 from least spending
on police to most and each voter prefers outcomes closer to their preference over those further away.
Then the median voter will have the id number 5 and option 5 will be the median voter equilibrium. An
increase in spending over option 5 will be opposed by at least 6 voters, voter 5 plus at least voters 0, …,
4; similarly, a majority supports the median over any decrease in spending.

Putting the pieces together: The median voter equilibrium is consistent with the concept of Nash
equilibrium (every voter is supporting their preferred choice — as we have seen, there is no gain to
strategic voting in a pairwise choice — and everyone’s expectations are correct. However we really
didn’t rely on the concept of NE to get at the sense of the MVT.

That said, the application of NE to voting becomes much more interesting when there is scope for
strategic behaviour. We saw that in the problem of agenda setting if there is a circular majority but in
that case, the MVT did not apply since preferences were not single peaked.

◀ | ▶
16 Lecture21.nb

Code
In[$ ]:= TableForm[{{"Preference rankings"},
{"Voter type", "Type 1", "Type 2", "Type 3"}, {"First choice", "A", "B", "C"},
{"Second choice", "B", "C", "A"}, {"Third choice", "C", "A", "B"}}];

GraphPlot[{c → b, b → a}, VertexLabeling → True,

DirectedEdges → True, PlotLabel → "Type 1's preference ranking"];
GraphPlot[{a → c, c → b}, VertexLabeling → True, DirectedEdges → True,
PlotLabel → "Type 2's preference ranking"];
GraphPlot[{b → a, a → c}, VertexLabeling → True, DirectedEdges → True,
PlotLabel → "Type 3's preference ranking"];

GraphPlot[{b → a}, VertexLabeling → True,

DirectedEdges → True, PlotLabel → "Majority rule: voting on a vs b"];

GraphPlot[{c → b, b → a, c → a}, VertexLabeling → True, DirectedEdges → True,

PlotLabel → "Majority voting with a Condorcet winner"];

GraphPlot[
{c → b, b → a, a → c}, VertexLabeling → True, DirectedEdges → True,
PlotLabel → "Condorcet paradox: cyclical majority"];

TreePlot[
{{cb → ba, b}, ba → a, {cb → ca, c}, ca → c},
VertexLabeling → True, DirectedEdges → True, PlotLabel →
"Type 1 sets agenda c v b, winner v a\nassuming Types 2 and 3 vote honestly"]

TreePlot[
{{cb → ba, "T2 honest: b wins"}, {ba → a, "Final vote: a wins"},
{cb → ca, "T2 strategic: c wins"}, {ca → c, "Final vote: c wins"}},
VertexLabeling → True, DirectedEdges → True,
PlotLabel → "Type 1 sets agenda c v b, winner v a\nwith strategic voting"]