On the optimality of direct democracy

Abstract

We study the optimality of direct democracy under incomplete information, in a setting where society must choose between two policies under one of two possible scenarios. Voters are of four types: leftist, rightist, selfish, and altruistic. While leftist and rightist voters are predetermined in their choice, selfish and altruistic voters form the undecided group. In our setting, incomplete information arises from two sources: the realized scenario and the composition of society. While existing literature typically considers only the first three types of voters, we show that introducing altruistic voters alters the effect of available information on the optimality of direct democracy, both under complete and incomplete information. Under complete information, this disruption breaks the alignment between optimal policies and scenarios that exists in the absence of altruistic voters. Under incomplete information, this misalignment becomes more pronounced. When only selfish voters are present, the policy chosen under direct democracy depends solely on the realized scenario and aligns with the optimal policy whenever voters are well-informed. However, with altruistic voters, a second source of informational distortion emerges—the composition of voter types—and altruistic voters can either facilitate or hinder optimal decisions, even when voters are well-informed. Crucially, even well-informed undecided voters may fail to select the optimal policy, as outcomes depend on the internal composition of this group.