A view from behavioral political economy on Chinaʹs institutional change

A behavioral political economy framework is built on the basis of prospect theory to explain the induced and imposed institutional changes during Chinaʹs market reform, giving special attention to the integrated effects of economic and political institutions. According to prospect theory, how rulers frame their decisions — in the prospects of gains or losses, influences how much risk they will take. Chinaʹs market reform has been largely framed in the prospects of economic gains, for which the continuously growing private sector is the driving force. Chinaʹs central government adopts a growth-oriented incremental reform that coincides with the prediction of prospect theory.