International Journal of Finance, Insurance and Risk Management ISSN: 2047-0916

How to Classify a Government Can a perceptron do it?

António Caleiro
International Journal of Finance, Insurance and Risk Management, Volume 3, Issue 3, 523, 2013
DOI: 10.35808/ijfirm/77

Abstract:

The electoral cycle literature has developed in two clearly distinct phases. The first one considered the existence of non-rational (naive) voters whereas the second one considered fully rational voters. It is our view that an intermediate approach is more appropriate, i.e. one that considers learning voters, which are boundedly rational. In this sense, one may consider perceptrons as learning mechanisms used by voters to perform a classification of the incumbent in order to distinguish opportunistic (electorally motivated) from benevolent (non-electorally motivated) behaviour of the government. The paper explores precisely the problem of how to classify a government showing in which, if so, circumstances a perceptron can resolve that problem. This is done by considering a model recently considered in the literature, i.e. one allowing for output persistence, which is a feature of aggregate supply that, indeed, may turn impossible to correctly classify the government.


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