Saturday, September 15, 2012

Group Decision Making

Groups Make Better Self-Interested Decisions

Gary Charness & Matthias Sutter
Journal of Economic Perspectives, Summer 2012, Pages 157–176

Abstract: In this paper, we describe what economists have learned about differences between group and individual decision-making. This literature is still young, and in this paper, we will mostly draw on experimental work (mainly in the laboratory) that has compared individual decision-making to group decision-making, and to individual decision-making in situations with salient group membership. The bottom line emerging from economic research on group decision-making is that groups are more likely to make choices that follow standard game-theoretic predictions, while individuals are more likely to be influenced by biases, cognitive limitations, and social considerations. In this sense, groups are generally less "behavioral" than individuals. An immediate implication of this result is that individual decisions in isolation cannot necessarily be assumed to be good predictors of the decisions made by groups. More broadly, the evidence casts doubts on traditional approaches that model economic behavior as if individuals were making decisions in isolation.

Nod to Kevin Lewis


Tom said...

Are these "groups" that "make" decisions actually markets? If so, the result is hardly surprising. If by "group decision", they mean democracy, then I don't believe it.

Mungowitz said...

Tom, there is also Condorcet's Jury Theorem, and also the famous Galton experiment on the weight of an ox.

The thing is that central limit theorem operates here. If you have many independent observations, the central tendency should be unbiased estimate of the mean. BUT (!) they have to be independent, and there has to be a fact of the matter.

I would say that democracy fails on (1) independence and (2) bias from self-interest. But there are plenty of things that are not markets that are good aggregators of information.

Bernard Guerrero said...

Not precisely bias from self-interest so much as that the "fact of the matter" often depends on who you are. Where you stand depends on where you sit, so to speak. If the two wolves vote for a mutton dinner and the sheep votes for mandatory veganism, it can only be called a matter of cognitive bias by doing violence to the term. They're all voting their self-interest, but these naturally diverge. It's a rum world.