The Political Fate of Market Reform in Latin America, Africa, and Eastern Europe

TLDR: In this article, the core finding of prospect theory, a psychological theory of decision making under risk, was used to explain why political leaders adopt drastic, costly neoliberal policies in a number of countries, but not in others.

Abstract: Why did political leaders adopt drastic, costly neoliberal policies in a number of countries, but not in others? Why did these painful measures elicit popular support in some nations, while triggering rejection and protest elsewhere? To complement extant explanations for these puzzling developments, the article draws on the core finding of prospect theory, a psychological theory of decision making under risk: people tend toward bold, risky choices when facing prospects of losses, but opt for caution when anticipating gains. Accordingly, leaders enact and citizens support drastic reforms only when they face deep crises, such as hyperinflation. This argument yields predictions about the different stages of the reform process, which the article assesses through a wide-ranging examination of reform politics in Latin America, Africa, and Eastern Europe. Boolean analysis corroborates most of the predictions derived from prospect theory, but also suggests the importance of economic and political-institutional context factors.