Many important economic and political decisions are made by teams. In the economic literature, however, the decision units are frequently modeled as individual economic agents. The paper experimentally investigates the question to what extent observed team decisions under risk are actually consistent with the principles of rational choice, specifically the principles of Expected Utility Theory (EUT) and of Portfolio Selection Theory (PST). The experiment is performed with individuals and teams. We find almost no evidence for the greater compliance of team decisions than of individual decisions with the principles of EUT. However, there is substantial evidence for the consistency of team decisions with the PST. Compared to individuals, teams accumulate significantly more expected value at a significantly lower total risk (measured in SD). We introduce a team decision algorithm, excess-risk vetoing, that combines simple majority voting with the right to veto alternatives providing additional risk that is not compensated by additional expected value. We find that the results of our experiment are well explained by the excess-risk vetoing.
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Paper provided by University of Bonn, Germany in its series Discussion Paper Serie B with number
452.
Length: pages Date of creation: Mar 1999 Date of revision: Handle: RePEc:bon:bonsfb:452
Contact details of provider: Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany Fax: +49 228 73 9221 Web page: http://www.bgse.uni-bonn.de/index.php?id=517
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Find related papers by JEL classification: C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General M10 - Business Administration and Business Economics; Marketing; Accounting - - Business Administration - - - General
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