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Who follows the crowd—Groups or individuals?

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  • Fahr, René
  • Irlenbusch, Bernd

Abstract

In games of social learning individuals tend to give too much weight to their own private information relative to the information that is conveyed by the choices of others (Weizsäcker, 2010). In this paper we investigate differences between individuals and small groups as decision makers in information cascade situations. In line with results from social psychology as well as results on Bayesian decision making (Charness et al., 2006) we find that groups behave more rationally than individuals. Groups, in particular, are able to abandon their own private signals more often than individuals when it is rational to do so. Our results indicate that the intellective part of the decision task contributes slightly more to the superior performance of groups than the judgmental part. Our findings have potential implications for the design of decision making processes in organisations, finance and other economic settings.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Behavior & Organization.

Volume (Year): 80 (2011)
Issue (Month): 1 ()
Pages: 200-209

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Handle: RePEc:eee:jeborg:v:80:y:2011:i:1:p:200-209

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Web page: http://www.elsevier.com/locate/jebo

Related research

Keywords: Information cascades; Herding; Group behaviour;

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References

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  1. Weizsäcker, Georg, 2008. "Do We Follow Others When We Should? A Simple Test of Rational Expectations," IZA Discussion Papers 3616, Institute for the Study of Labor (IZA).
  2. Goeree, Jacob & Palfrey, Thomas & Rogers, Brian & McKelvey, Richard, 2004. "Self-correcting Information Cascades," Working Papers 1197, California Institute of Technology, Division of the Humanities and Social Sciences.
  3. Smith, L. & Sorensen, P., 1996. "Pathological Outcomes of Observational Learning," Economics Papers 115, Economics Group, Nuffield College, University of Oxford.
  4. Martin G. Kocher & Matthias Sutter, 2005. "The Decision Maker Matters: Individual Versus Group Behaviour in Experimental Beauty-Contest Games," Economic Journal, Royal Economic Society, vol. 115(500), pages 200-223, 01.
  5. Bogaçhan Çelen & Shachar Kariv, 2004. "Distinguishing Informational Cascades from Herd Behavior in the Laboratory," American Economic Review, American Economic Association, vol. 94(3), pages 484-498, June.
  6. James Cox & Stephen Hayne, 2006. "Barking up the right tree: Are small groups rational agents?," Experimental Economics, Springer, vol. 9(3), pages 209-222, September.
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  8. Wolfers, Justin & Zitzewitz, Eric, 2004. "Prediction Markets," Working paper 259, Regulation2point0.
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  12. Hirshleifer, David & Teoh, Siew Hong, 2001. "Herd Behavior and Cascading in Capital Markets: A Review and Synthesis," MPRA Paper 5186, University Library of Munich, Germany.
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  18. Kübler, Dorothea & Weizsäcker, Georg, 2001. "Information cascades on the labor market," SFB 373 Discussion Papers 2001,86, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  19. Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
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Citations

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Cited by:
  1. Georg Weizsacker, 2008. "Do we follow others when we should? A simple test of rational expectations," LSE Research Online Documents on Economics 4945, London School of Economics and Political Science, LSE Library.
  2. Tamar Kugler & Edgar E. Kausel & Martin G. Kocher, 2012. "Are Groups more Rational than Individuals? A Review of Interactive Decision Making in Groups," CESifo Working Paper Series 3701, CESifo Group Munich.
  3. Anthony Ziegelmeyer & Christoph March & Sebastian Krügel, 2012. ""Do We Follow Others when We Should? A Simple Test of Rational Expectations": Comment," Jena Economic Research Papers 2012-006, Friedrich-Schiller-University Jena, Max-Planck-Institute of Economics.
  4. Meub, Lukas & Proeger, Till, 2014. "The impact of communication regimes on group rationality: Experimental evidence," Center for European, Governance and Economic Development Research Discussion Papers 185, University of Goettingen, Department of Economics.
  5. Meub, Lukas & Proeger, Till & Hüning, Hendrik, 2013. "A comparison of endogenous and exogenous timing in a social learning experiment," Center for European, Governance and Economic Development Research Discussion Papers 167, University of Goettingen, Department of Economics.
  6. Jeanette Brosid-Koch & Timo Heinrich & Christoph Helbach, 2013. "Does Truth Win When Teams Reason Strategically?," Ruhr Economic Papers 0396, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  7. Thomas Stöckl & Jürgen Huber & Michael Kirchler & Florian Lindner, 2013. "Hot Hand Belief and Gambler's Fallacy in Teams: Evidence from Investment Experiments," Working Papers 2013-04, Faculty of Economics and Statistics, University of Innsbruck.
  8. Brosig-Koch, Jeannette & Heinrich, Timo & Helbach, Christoph, 2014. "Does truth win when teams reason strategically?," Economics Letters, Elsevier, vol. 123(1), pages 86-89.

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