PROSPECT THEORY AND POLITICAL SCIENCE Jonathan Mercer

12 MERCER
of gain causes most wars, that threats against a state in the domain of loss may
backfire, that we should anticipate lower than optimal levels of trade (because
people overvalue goods in their possession), and that radical economic plans aim
to avoid losses rather than to secure equivalent gains. Although political scientists
typically use prospect theory to explain conflict, several studies suggest that actors
in a domain of loss will cooperate to avoid further losses.
For example, Mastanduno (1993) uses loss aversion to explain why the United
States and Japan adopted a risky cooperative economic strategy, Spar (1993)
notes the “dramatic appeal of loss aversion” to explain U.S.-Japanese cooperation
over the development of a fighter aircraft, Welch (1993a) argues Israel cooperated
with the United States to avoid damaging relations with Washington, and
Fanis (2004) uses loss aversion to explain how economic actors in Chile overcame
a collective action problem to form a coalition. Looming losses concentrate the
mind and encourage actors to accept policies that they might otherwise reject. Although
it is tempting to view either a rational or psychological explanation as best
within a given case, Spar’s (1993) study led her to conclude that “a model that combines
bureaucratic politics and an orthodox utility maximization perspective offers
a compelling account of how the process unfolded at several critical junctures”
(p. 91). Sometimes policy makers adhere to normative models of choice, sometimes
they do not, and only by considering the process of decision making is it
possible to reach a sensible conclusion about either path.
Weyland extends loss aversion to comparative politics. He challenges the view
that dictatorships engage in radical economic reform more easily than democracies
by emphasizing the importance of loss aversion for both leaders and citizens in
Latin American democracies. Two conditions are necessary for radical economic
reform to occur. First, the public must be risk acceptant, which means they must
be in a domain of loss. Second, new leaders must emerge who are free from past
failed policies and who view themselves in a domain of loss. These leaders will
reject the established political constraints and embrace radical economic reform.
Weyland uses structure to explain frame, and frame to explain economic choices:
“By demonstrating how these situational conditions affect individual choices, my
prospect-theory interpretation provides a firm microfoundation for widely used
crisis arguments” (Weyland 2002, p. 7). Weyland makes a compelling case in
his study of Argentina, Brazil, Peru, and Venezuela that changes in frame—not
changes in assets—best explain the initiation and consequences of radical economic
reform. Nonetheless, identifying loss aversion is difficult. It is not always
obvious whether Weyland’s actors are any more risk acceptant than a skydiver who
relies on an emergency parachute after the primary one fails.
Identifying Loss Aversion
Demonstrating loss aversion’s effects is difficult for at least three reasons: They
may be artifacts of the lab and thus vanish in the field; measuring loss aversion
outside the lab is hard; and loss aversion in the domain of loss can be rational.