Emergence of Populism under Risk and Ambiguity

Abstract

I construct a dynamic model in which an ambiguity-averse principal chooses the agent to whom to delegate the decision among elites (i.e., experts) with uncertain biases and non-elites with no bias in each period. The focus is on the phenomenon that the principal distrusts elites and delegates the decision to a non-expert who has only limited ability, which can be regarded as populism (especially anti-elitism) in the context of politics. In particular, I investigate the effect of the uncertainty regarding preference heterogeneity among experts. I show that its effect on the emergence of populism is different depending on the type of the uncertainty. In particular, an increase in risk and in ambiguity (i.e., Knightian uncertainty) work in opposite directions with higher ambiguity rather than risk being a significant source of populism. This result indicates that higher uncertainty about the elite system as a whole triggers populism.