Narratives about and Support for Economic Institutions

In recent years, democracies on the globe are facing the challenge of eroding support for established economic institutions. In Europe, most democracies have adopted some form of social market economy (SME), which balances between economic efficiency and the redistribution of resources. While the SME is often used as a popular phrase in political rhetoric, general knowledge about the attributes of the SME in the general population is low. In this paper, we examine whether limited knowledge contributes to declining support for economic institutions. We first elicit individuals' narratives about the SME to identify perceptions and misperceptions about the SME. We then design a randomized controlled trial in which a random subset of participants receives information about the construction of the SME. Our treatments also differentiate between general information and variants that put greater emphasis on either market aspects or social aspects of the SME. Our RCT explores whether correcting erroneous beliefs about the SME increases individuals’ support for economic institutions. The survey is conducted in Germany, which provides an ideal laboratory to study our research question, given that it is not only the largest European economy but also has a strong historical connection to the SME. Our analysis provides important implications for policy design. If declining support for existing institutions is driven by a lack of information, then trust may be restored simply via the provision of information.