For example, electoral democracy is an institutional response to a potential preference misalignment between the electorate and the polity. Parties publish manifestos ex-ante to set their mandate. And, if successful, they are held accountable for that mandate by society expost through elections. 11 Democracy, and its associated institutions, is the solution to an ageless principal/agent problem. What is true at the level of the nation state is also true at the level of the firm and the individual. In firms, principal-agent problems can arise because managers put their own preferences (for mega-mergers, mega-bonuses, mega-jets) ahead of shareholders. 12 They  6  A term first popularised in the Book ‘Nudge: Improving Decisions about Health, Wealth, and Happiness’ (Thaler and Sunstein (2008). 7  As discussed in Diamond and Vartiainen (2007). 8  Bergman and Lane (1990). 9  Gailmard (2014). 10  Acemoglu and Robinson (2012). 11  Frerejohn (1986). 12  Jensen and Meckling (1976). 2  BIS central bankers’ speeches  also arise from workers putting their own preferences (say, for an easy life) over managers. 13 Institutional structures – in this case, company and employment law – can help solve these problems. Among individuals, preference biases can also have negative societal implications. In the medical profession, there is research arguing that doctors systematically over-prescribe drugs and over-admit patients to hospital. 14 Neither may be in the patients’, nor societies’, best interests.

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