A competent citizenry is the key to the legitimacy of direct democratic decisions, but just how competent are citizens in direct democracy? Understanding how citizens reason and how they make their decisions is ever more important as the use of direct democratic instruments is growing throughout the world. I propose a concept of citizen competence based on reason-giving. A competent citizen is one who bases his or her decisions on substantive, policy-related arguments, and who considers a diversity of arguments before taking a decision. In this thesis I use a multi-method approach, combining three different datasets to analyze citizen competence in direct democracy: cross-sectional post-ballot surveys from 34 popular votes in Switzerland; a panel dataset covering two referendum campaigns in Switzerland; and a lab experiment conducted in Scotland during the Scottish independence referendum in 2014. I found, that citizens have a surprisingly accurate knowledge of the policy-related arguments of the debate. Furthermore, arguments are significantly associated with vote intention, even when controlling for party preference. This first results highlight the importance of meaningful arguments in political opinion formation. However, a second finding of my project is that citizens tend to process arguments in a biased way, preferring arguments compatible with their prior beliefs and partisan attachments, and disregarding or devaluing incompatible information. Yet this tendency for directional, motivated reasoning can be discouraged by holding individuals accountable for their views, that is, by making them justify their position to others. The conclusions I draw for the legitimacy of direct democratic decisions are mixed. While citizens are not as uninformed and minimalist as they are often depicted in public opinion research, they are still partisan and find it difficult to process information impartially. Therefore, in order to enhance the legitimacy of direct democratic procedure, providing citizens with diverse and balanced information is necessary, but not sufficient. They need to encounter an environment where they are motivated to be accurate, for example, by being expected to justify themselves to others in cross-cutting discussions.