CESifo, a Munich-based, globe-spanning economic research and policy advice institution

Venice Summer Institute 2014

Venice Summer Institute
July 2014

BEHAVIOURAL POLITICAL ECONOMY
Organisers: Heinrich Ursprung, Urs Fischbacher and Arye Hillman
Workshop to be held on 21 – 22 July 2014 on the island of San Servolo in the Bay of Venice, Italy

PSYCHOLOGICALLY-BASED VOTING WITH
UNCERTAINTY
Arianna Degan and Ming Li
CESifo GmbH • Poschingerstr. 5 • 81679 Munich, Germany
Tel.: +49 (0) 89 92 24 - 1410 • Fax: +49 (0) 89 92 24 - 1409
E-Mail: office@cesifo.de • www.cesifo.org/venice*0!&#& "##0 * &+"% ."+!
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5B8 *9G9B8CF:9F 34  19 G<CK <CK9J9F H<5H CIF AC89@ K<9F9 7=H=N9BG 8C BCH H5?9H<9 DFC656=@=HM C: 69=B; D=JCH5@ =BHC 577CIBH 5B8 K<9F9 DCG=H=J9 5B8 B9;5H=J9 A5F;=BG
C: J=7HCFM 5V97HG IH=@=HM 8=V9F9BH@M 89@=J9FG GCA9 =ADCFH5BH 8=V9F9BH DF98=7H=CBG :FCA
9889FG9B 5B8 *9G9B8CF:9F 34=FGH =B CIF AC89@ 9J9B =B @5F;9 9@97H=CBG H<9F9 =G BCH
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5BH9 :5JCIF98 75B8=85H9 5@K5MG K=BG =B H<9 F=;<H GH5H9 6IH H<9 BCB :5JCIF98 75B8=85H9
5@K5MG @CG9G .<=G F9GI@H =G BCH H<5H GIFDF=G=B; 6975IG9 CIF JCH9FG 8C BCH 7CB8=H=CB CB H<9
DFC656=@=HM C: 69=B; D=JCH5@ K<9B H<9M A5?9 5 JCH=B; 897=G=CB 6IH H<9M 5F9 CB@M 7CB79FB98
56CIH H<9 DGM7<C@C;=75@ IH=@=HM F9@5H98 HC H<9 A5F;=BG C: J=7HCFM -97CB8 =B 9889FG9B 5B8*9G9B8CF:9F 34 =B 9EI=@=6F=IA IB=B:CFA98 7=H=N9BG 9=H<9F JCH9 :CF CB9 75B8=85H9 CF 56GH5=B
6IH H<9M B9J9F A=L 69HK99B H<9 HKC 75B8=85H9G 5G H<9M 8C =B CIF AC89@ .<=F8 H<9=F
AC89@ DF98=7HG H<5H HIFBCIH C: IB=B:CFA98 7=H=N9BG 5@K5MG =B7F95G9G 5G H<9 DFCDCFH=CB C:=B:CFA98 JCH9FG =B7F95G9G #B CIF AC89@ H<=G <5DD9BG CB@M =B IB89G=F56@9 A=L98 GHF5H9;M
9EI=@=6F=5 CIFH< H<9 A5F;=BG C: J=7HCFM =B7F95G9 K=H< H<9 DFCDCFH=CB C: D9CD@9 H<5H 5F9=B:CFA98 K<=@9 =B CIF AC89@ H<=G =G BCH H<9 75G9 =B J5F=CIG 7=F7IAGH5B79G =B5@@M =B CIF
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75B8=85H9 =B GH5H9  5B8 75B8=85H9=B GH5H9  -H5H9  C77IFG K=H< DFC656=@=HM
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75B8=85H9 H<5H =G 5 75B8=85H9 K<C =G BCH GI=H56@9 HC H<9 GH5H9 C: H<9 KCF@8
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A5F;=B C: J=7HCFM CF A5F;=B C: @CGG =:    :CF H<9 QF=;<H 75B8=85H9 .<9 :IB7H=CB  =G
BCBB9;5H=J9 GHF=7H@M =B7F95G=B; :CF    5B8 GHF=7H@M 897F95G=B; :CF .<9 F9;F9H:IB7H=CB 75B 69 G9D5F5H98 =BHC HKC D5FHG     5B8      89OB98 5G:C@@CKG    :CF      :CF 
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75B8=85H9 K=BG 6M H<9 G5A9 A5F;=B .<=G =G 5@GC HFI9 :CF J9FM 5F6=HF5F=@M GA5@@ A5F;=BG GGIADH=CB 5@GC =AD@=9G H<5H H<9 F9;F9H F957<9G N9FC K<9B H<9 A5F;=B C: J=7HCFM C: 5
75B8=85H9 697CA9G @5F;9 'CF9 GD97=O75@@M =H =AD@=9G H<5H    :CF    :CF
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DFC656=@=HM 8=GHF=6IH=CB #B 588=H=CB 5 7=H=N9B =B7IFG 5 7CGH  K<9B <9 D5FH=7=D5H9G =B
5B 9@97H=CB .<9 7CGH C: D5FH=7=D5H=CB =G 8=GHF=6IH98 =B H<9 DCDI@5H=CB 577CF8=B; HC H<9
7CBH=BICIG 7IAI@5H=J9 8=GHF=6IH=CB :IB7H=CB   K=H< 5GGC7=5H98 89BG=HM :IB7H=CB .56@9 GIAA5F=N9G 7=H=N9BGP DF9:9F9B79G 7CB8=H=CB5@ CB H<9 GH5H9 C: H<9 KCF@8  
1<9B 897=8=B; K<9H<9F HC D5FH=7=D5H9 5B8 9J9BHI5@@M <CK HC JCH9 5 7=H=N9B <5G HC
7CAD5F9 H<9 9LD97H98 IH=@=HM C: H<9 H<F99 CDH=CBG 56GH5=B JCH=B; :CF  5B8 JCH=B; :CF.<9 :C@@CK=B; .56@9 G<CKG H<9 IB=B:CFA98 7=H=N9BPG 9LD97H98 IH=@=HM :CF 957< CDH=CBK<9F9  =G 5B =B8=75HCF :IB7H=CB H<5H H5?9G J5@I9 K<9B H<9 GH5H9 C: H<9 KCF@8 =G 

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J5@I9 =B .56@9  5B IB=B:CFA98 7=H=N9BGPG DFC6@9A 697CA9G
          
K=H< IH=@=HM J5@I9G F9DF9G9BH=B; 56GH5=B=B; JCH=B; :CF 5B8 JCH=B; :CF

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K=H< 7CGH C: JCH=B;  JCH9G :CF 9=H<9F CF  =: 5B8 CB@M =:         B =B:CFA98 7=H=N9B =BGH958 K=@@ B9J9F 7<CG9 HC JCH9 :CF H<9 KFCB; 75B8=85H9 "9 JCH9G:CF H<9 F=;<H 75B8=85H9 5G @CB; 5G <=G JCH=B; 7CGH =G F9@5H=J9@M @CK CH<9FK=G9 <9 56GH5=BG
B =B:CFA98 7=H=N9B K=H< 7CGH  JCH9G =B GH5H9  =: 5B8 CB@M =:   
K<9F9  =G H<9 K=BB=B; A5F;=B C: 75B8=85H9  =B GH5H9   K<9F9  (,"#")",$ !)+)"1+"&%#B H<=G G97H=CB K9 5B5@MN9 H<9 9EI=@=6F=IA C: CIF AC89@ &9H   89BCH9 HIFBCIH C: IB=B:CFA98 7=H=N9BG 5B8    H<9 DFC656=@=HM H<5H 5B IB=B:CFA98 7=H=N9B JCH9G :CF
75B8=85H9  7CB8=H=CB=B; CB JCH=B; -=A=@5F@M @9H   89BCH9 HIFBCIH C: =B:CFA98 7=H=N9BG=B GH5H9     M H<9 5F;IA9BH 5H H<9 9B8 C: H<9 DF9J=CIG G97H=CB K9 <5J9 H<5H     .<9 9EI=@=6F=IA F9EI=F9G H<5H H<9 F95@=N98 A5F;=BG C: J=7HCFM C: H<9 HKC 75B8=85H9G
AIGH 69 7CBG=GH9BH K=H< H<9 5BH=7=D5H98 A5F;=BG C: J=7HCFM  5B8  5B8 H<9 69<5J=CIF
H<9M =B8I79                          -IAA=B; H<9 HKC 9EI5H=CBG K9 C6H5=B          

FCA H<=G 9EI5H=CB K9 A5M =AA98=5H9@M C6H5=B GCA9 =ADCFH5BH =AD@=75H=CBG GIA
A5F=N98 =B H<9 :C@@CK=B; &9AA5 56CIH H<9 K=BB=B; A5F;=BG =B H<9 HKC GH5H9G
$$  ) '' 1*/%)# !,0%'%-% )    )&& & $$ =FGH K9 G<CK H<5H 
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IFH<9FACF9  .<IG K9 A5M FI@9 CIH H<9 75G9 K<9F9   5B8  
=AD@=9G H<5H H<9F9 AIGH 69 IB=B:CFA98 JCH9FG K<C JCH9 :CF
IH 5B IB=B:CFA98 JCH9F
OB8G =H CDH=A5@ HC JCH9 :CF
CB@M =:        M H<9 5GGIADH=CBG C:QK=BB9F F9;F9HG @9GG 5B8     K9 AIGH <5J9      K<=7< KCI@8 =AD@M     5 7CBHF58=7H=CB "9B79 K9 7CB7@I89 .C G<CK     5GGIA9.<=G =AD@=9G      K<=7< =B HIFBHC H<9 7CBHF5FM =AD@=9G 5@@ IB=B:CFA98 JCH9FG K<C D5FH=7=D5H9 =B H<9 9@97H=CB JCH9 :CF  = 9   .<IG                       

6M   5B8  5 7CBHF58=7H=CB &9AA5 GH5H9G H<5H =B H<9 9L 5BH9 ACF9 @=?9@M GH5H9   H<9 F=;<H 75B8=85H9  
K=BG #B H<9 CH<9F GH5H9   H<9 F=;<H 75B8=85H9   9=H<9F K=BG 6M 5 GA5@@9F A5F;=B CF@CG9G H<9 9@97H=CB .<9 =B:CFA98 JCH9FG 5@K5MG JCH9 :CF H<9 F=;<H 75B8=85H9 .<IG =B 9=H<9F
GH5H9 =: H<9 F=;<H 75B8=85H9 @CG9G H<9 9@97H=CB =H AIGH 69 6975IG9 ACF9 IB=B:CFA98 JCH9FG<5J9 JCH98 :CF H<9 KFCB; 75B8=85H9 H<5B :CF H<9 F=;<H 75B8=85H9 -=B79 H<9 GHF5H9;=9G C:
IB=B:CFA98 JCH9FG 8C BCH 89D9B8 CB H<9 GH5H9 =H AIGH A95B ACF9 IB=B:CFA98 JCH9FG <5J9
JCH98 :CF H<9 -%#$/ 75B8=85H9 =B H<9 CH<9F GH5H9 K<=7< ;I5F5BH99G H<5H =B H<5H GH5H9 H<9F=;<H 75B8=85H9 K=BG "CK9J9F G=B79 GH5H9  =G ACF9 @=?9@M 5B8 K=BB9FG F9;F9H @9GG =:@CG9G H<9 9@97H=CB =B GH5H9   =B CF89F :CF IB=B:CFA98 JCH9FG HC 69 K=@@=B; HC JCH9 :CF  =H
AIGH A95B H<5H =B GH5H9   75B8=85H9 K=BG 6M 5 GA5@@9F A5F;=B H<5B PG A5F;=B C: @CGG
K<=7< =AD@=9G H<9 GIA C: H<9 HKC A5F;=BG =G B9;5H=J9 IH H<=G =G =ADCGG=6@9 5G H<9=F GIA=G G=AD@M 9EI5@ HC H<9 GIA C: =B:CFA98 JCH9FG K<C JCH9 =B 9=H<9F GH5H9 .<IG 75B8=85H9
AIGH K=B H<9 9@97H=CB =B GH5H9  #B 588=H=CB =: =B 6CH< GH5H9G H<9 F=;<H 75B8=85H9
K=BG H<9 9@97H=CB PG K=BB=B; A5F;=B <5G HC 69 <=;<9F 6975IG9 =: <58 5 <=;<9F K=BB=B;
A5F;=B H<9B 5B IB=B:CFA98 JCH9F KCI@8 GHF=7H@M DF9:9F HC JCH9 :CF 5B8 =B:CFA98 JCH9FG
KCI@8 JCH9 :CF ACF9 H<5B H<9M JCH9 :CF  K<=7< F9GI@HG =B 5 7CBHF58=7H=CB&9AA5 5B8   5B8   5@GC =ADCG9 F9GHF=7H=CBG CB H<9 A=L=B; JCH=B; DFC656=@=H=9G
C: IB=B:CFA98 JCH9FG 5G :C@@CKG$$  ) '' 1*/%)# !,0%'%-%    )&& & $$  GGIA9 HC H<9 7CBHF5FM   
JCH9FG JCH9 :CF K=H< 5 DCG=H=J9 DFC656=@=HM "9B79

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1=H<CIH :IFH<9F 5GGIADH=CBG K9 75BBCH ?BCK =:  =G 897F95G=B; =B 5@@ =HG 8CA5=B #H 75B 69 G<CK98
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*5FH  :C@@CKG :FCA *5FH  H<9 89OB=H=CB C:     5B8 H<9 5GGIADH=CBG H<5H   :CF    -I6GH=HIH=B;    =BHC  K9 <5J9              

19 5F9 =BH9F9GH98 =B 9L=GH9B79 5B8 IB=EI9B9GG C: 5 GC@IH=CB    HC H<9 56CJ9
9EI5H=CB 1<9B     6M &9AA5  K9 <5J9    .<9 &"- =G     
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K9 8C BCH ?BCK K<9H<9F H<9 ,"- =G CF BCH "CK9J9F 6M H<9 =BH9FA98=5H9 J5@I9 H<9CF9A
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A=L=B; 9EI=@=6F=IA  (CK <CK9J9F K9 B998    #H G<CI@8 69 BCH=798 H<5H K<=@9=B H<9 89G=F56@9 A=L=B; 9EI=@=6F=IA H<9 GC@IH=CB HC  =G IB=EI9 :CF H<9 IB89G=F56@9 A=L=B;
9EI=@=6F=IA K=H<CIH :IFH<9F 5GGIADH=CBG K9 75BBCH G5M H<9 G5A9 56CIH H<9 GC@IH=CB HC 
19 7CBH=BI9 H<9 5B5@MG=G C: H<9 IB89G=F56@9 A=L=B; 9EI=@=6F=IA IB89F H<9 5GGIADH=CB
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H<9 A=L=B; 7CB8=H=CB   5B8 H<9 7CBG=GH9B7M C: 9LD97H5H=CBG 5B8 57HI5@ A5F;=BG =B8I798
6M 69<5J=CIFG   =H AIGH =B8I79 5 A=L=B; DFC656=@=HM      G5H=G:M=B;        

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     K<=7< 6M 89OB=H=CB 9EI5@G   
CF K<5H 7CB79FBG H<9 G97CB8 7CB8=H=CB K<9B    K9 <5J9         5B8     CB8=H=CB  697CA9G            
K<=7< =G H<9 G5A9 5G   .<=G A95BG H<5H 7CB8=H=CB  =G G5H=GO98 5H  :CF    #: "CK9J9F =H =G BCH B979GG5F=@M G5H=GO98 :CF 5@@         
  GI7< H<5H  <C@8G :CF  =G =B7F95G=B; =B  H<9F9 9L=GHG 5  19 ?BCK H<5H    6IH 5 DF=CF= K9 8C BCH ?BCK =HG D5HH9FB CF     =G B9J9F G5H=GO98 5H  5B8 =:           =G =B7F95G=B; =B  =H =G BCH G5H=GO98 :CF 5BM   #H :C@@CKG H<5H =B H<=G G=HI5H=CB  GIU7=9BH 7CB8=H=CB :CF
H<9F9 75BBCH 69 5B IB89G=F56@9 A=L=B; 9EI=@=6F=IA :CF            HC 69 =B7F95G=B; =B  =G H<5H HIFBCIH C: IB=B:CFA98.C 5GGIF9 H<5H H<=G =G H<9 75G9 K9 =ADCG9 H<97=H=N9BG    =G 897F95G=B; =B 
:C@@CK=B; 5GGIADH=CBG H<5H K=@@ 5@GC 69 IG9:I@ =B H<9 5B5@MG=G C: DIF9 GHF5H9;M 9EI=@=6F=5**,$'+"&%  = 

5B8 ==      

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GIADH=CB 5GGIF9G H<5H   =BHFC8I798 CB D5;9  =G DCG=H=J9 5@GC =B IB89G=F56@9 A=L=B;
9EI=@=6F=5 .<9 H9FA  =BHFC8I798 CB D5;9  K=@@ 69 B9;5H=J9 5@GC =B H<9 IB89G=F56@9
A=L=B; 9EI=@=6F=IA =: :CF 9L5AD@9  =G IB=:CFA 5B8 H<9 F9;F9H :IB7H=CB @=B95F #B H<=G
G=HI5H=CB H<9 9LDF9GG=CB  =B   =G B9;5H=J9 .<9 56CJ9 7CBG=89F5H=CBG @958 IG HC H<9 :C@@CK=B; 7<5F57H9F=N5H=CB C: H<9 IB89G=F56@9
A=L=B; 9EI=@=6F=IA IB89F H<9 5GGIADH=CBG H<5H H<9 GC@IH=CB  HC   =G IB=EI9 5B85GGIADH=CB )&'&*"+"&%  $!-! !3%./. ) 0) !.%-'! (%3! ./-/!#4 !,0%'%-%0( %" ) *)'4 %"   )   

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=B :CCHBCH9  75B 69 F9 KF=HH9B 5G           K<=7< IB89F 5GGIAHD=CB
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K=H< DFC656=@=HM  H<5H =G   .<9B   5B8  697CA9                     H<9 @9:H <5B8 G=89 C:  =G 7CBH=BICIG 5B8 =B7F95G=B; =B  GHF=7H@M :CFCF    5B8 57<=9J9G =HG A=B=AIA B9;5H=J9 J5@I9 5H 5B8 A5L=AIA CB9 5H.<9F=;<H <5B8 G=89 C:  =G DCG=H=J9 7CBH=BICIG 5B8 GHF=7H@M 897F95G=B; =B   5B8 57<=9J9G
 K<9F9 H<9 GID9FG7F=DH
5 A=B=AIA C: N9FC .<9F9:CF9  <5G 5 IB=EI9 GC@IH=CB  GH5B8G :CF DIF9 GHF5H9;M
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CF K<5H 7CB79FBG H<9 F9GDCBG9 C: HIFBCIH C: =B:CFA98 7=H=N9BG HC  5B8 C: HIFBCIH
C: 957< ;FCID C: 7=H=N9BG K=H< F9GD97H HC  9EI5H=CBG   H<FCI;<   5F9 5@GC J5@=8 =B
H<9 DIF9 GHF5H9;M 9EI=@=6F=IA 75G9 DFCJ=898 H<5H  =G F9D@5798 =B 957< H9FA K=H<    
(CH=79 H<5H 5 GC@IH=CB       HC  5@K5MG 9L=GHG 5G H<9 &"- =G 7CBH=BICIG
K=H< J5@I9 CB H<9 7CAD57H G9H 3  4 5B8 H<9 ,"- <5G J5@I9 =B     GGIADH=CB
 =AD@=9G H<5H     =G =B7F95G=B; =B  5@GC :CF    K<=7< =B HIFB 5GGIF9G
H<5H H<9 GC@IH=CB    =G IB=EI9 .<9 :C@@CK=B; ;F5D< 8F5KB 5GGIA=B; IB=:CFA 7CGH
8=GHF=6IH=CB 5B8 @=B95F F9;F9H :IB7H=CB 75B 69 IG98 HC IB89FGH5B8 <CK  5B8  5F9
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9F5H=CB H<5H =B:CFA98 7=H=N9BG <5J9 <=;<9F HIFBCIH IB=B:CFA98 7=H=N9BG 5F9 BCH 9BCI;< HC
7CIBH9F65@5B79 H<9 JCH=B; 7<C=79G C: =B:CFA98 JCH9FG CF GA5@@9F DFCDCFH=CBG C: =B:CFA98
JCH9FG K9 <5J9 HC 5B5@MN9 7CB8=H=CB  :IFH<9F 19 ?BCK H<5H      =G
897F95G=B; =B  K<=@9 7@95F@M    =G =B7F95G=B; 1<9B    &"- ,"- 5B8 H<9CDDCG=H9 <C@8G K<9B     #H :C@@CKG H<5H H<9F9 9L=GHG      GI7< H<5H :CF 5@@    <C@8G K=H< 9EI5@=HM 5H  (CH=79 H<5H  =G =B7F95G=B; =B  6975IG9
     =G 897F95G=B; =B  5B8 =B7F95G=B; =B  .<9F9:CF9 H<9F9 9L=GHG  GI7<
H<5H :CF     <C@8G #B D5FH=7I@5F 5H    K9 <5J9 H<5H    .<=G =G
6975IG9 5H  5B8  H<9F9 =G 5 89G=F56@9 A=L=B; 9EI=@=6F=IA K=H<    K<9F9   
5B8  (CH=79 5@GC H<5H H<9F9 9L=GHG 5 IB=EI9     GI7< H<5H   :CF
5@@    #B 588=H=CB        .<=G =G 6975IG9 K<9B    H<9 9EI5H=CB
89OB=B;  697CA9G      5B8  =G H<9 GC@IH=CB HC        H<5H
=G         K<=7< =G 5@K5MG GA5@@9F H<5B     
CB8=H=CB  =G B979GG5FM 6IH BCH GIU7=9BH :CF <5J=B; 5 89G=F56@9 DIF9 GHF5H9;M
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IB=B:CFA98 7=H=N9BG GHF=7H@M DF9:9F HC JCH9 :CF 75B8=85H9  .<9 :C@@CK=B; &9AA5 5F9=ADCFH5BH :CF H<9 7<5F57H9F=N5H=CB C: DIF9 GHF5H9;M 9EI=@=6F=IA$$  *-       "*-       ) "*-  

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 =G GI7< H<5H 9EI5H=CB   =G G5H=GO98 K=H<    H    -=B79 H<9F9 =G 5 IB=EI9
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CF    OL 5  5B8 H<9 7CFF9GDCB8=B;  19 <5J9       5B8 H<9 G5H=G:M=B;   =G GHF=7H@M @9GG H<5B
CF H<9 G5A9   7CBG=89F H<9  5B8 
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 #B 588=H=CB G=B79  5B8     =G =B7F95G=B; =B  K9 <5J9 H<5H 
AIGH 5@GC G5H=G:M  5B8     =G =B7F95G=B; =B  :CF  =H AIGH 69 H<5H  #H :C@@CKG H<5H 5H     5B8 H<9F9:CF9 G=B79  =G 897F95G=B; =B  AIGH 69 GA5@@9F H<5B 
 H<9 DFCC: =G 5B5@C;CIG CF H<=G F5B;9 C:  K9 <5J9 H<5H  K<=7<
CF =AD@=9G H<5H 5@CB;  H<9  H<5H G5H=GO9G   5H H<9  G5H=G:M=B;  =G GCA9 CF H<9 G5A9 F95GCB 5G 56CJ9 H<=G BCK =AD@=9G H<5H  5B8  G5H=G:M=B;   5B8 .<9F9:CF9 G=B79  =G 897F95G=B; =B  5F9 GI7< H<5H    5B8   
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