Teams Take the Better Risks
AbstractMany 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.
Download InfoTo our knowledge, this item is not available for download. To find whether it is available, there are three options:
1. Check below under "Related research" whether another version of this item is available online.
2. Check on the provider's web page whether it is in fact available.
3. Perform a search for a similarly titled item that would be available.
Bibliographic InfoPaper provided by University of Bonn, Germany in its series Discussion Paper Serie B with number 452.
Date of creation: Mar 1999
Date of revision:
Contact details of provider:
Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
Fax: +49 228 73 6884
Web page: http://www.bgse.uni-bonn.de/index.php?id=517
Decision under Risk; Group Decision; Expected Utility; Portfolio Selection;
Other versions of this item:
- 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
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kahneman, Daniel & Tversky, Amos, 1979.
"Prospect Theory: An Analysis of Decision under Risk,"
Econometric Society, vol. 47(2), pages 263-91, March.
- Amos Tversky & Daniel Kahneman, 1979. "Prospect Theory: An Analysis of Decision under Risk," Levine's Working Paper Archive 7656, David K. Levine.
- Cason, Timothy N & Mui, Vai-Lam, 1997. "A Laboratory Study of Group Polarisation in the Team Dictator Game," Economic Journal, Royal Economic Society, vol. 107(444), pages 1465-83, September.
- Kroll, Yoram & Levy, Haim & Rapoport, Amnon, 1988. "Experimental Tests of the Separation Theorem and the Capital Asset Pricing Model," American Economic Review, American Economic Association, vol. 78(3), pages 500-519, June.
- Elke U. Weber & Richard A. Milliman, 1997. "Perceived Risk Attitudes: Relating Risk Perception to Risky Choice," Management Science, INFORMS, vol. 43(2), pages 123-144, February.
- Bone, John & Hey, John & Suckling, John, 1999. "Are Groups More (or Less) Consistent Than Individuals?," Journal of Risk and Uncertainty, Springer, vol. 18(1), pages 63-81, April.
- Kroll, Yoram & Levy, Haim & Rapoport, Amnon, 1988. "Experimental tests of the mean-variance model for portfolio selection," Organizational Behavior and Human Decision Processes, Elsevier, vol. 42(3), pages 388-410, December.
- Grether, David M & Plott, Charles R, 1979.
"Economic Theory of Choice and the Preference Reversal Phenomenon,"
American Economic Review,
American Economic Association, vol. 69(4), pages 623-38, September.
- Grether, David M. & Plott, Charles R., . "Economic Theory of Choice and the Preference Reversal Phenomenon," Working Papers 152, California Institute of Technology, Division of the Humanities and Social Sciences.
- Rapoport, Amnon & Zwick, Rami & Funk, Sandra G., 1988. "Selection of portfolios with risky and riskless assets: Experimental tests of two expected utility models," Journal of Economic Psychology, Elsevier, vol. 9(2), pages 169-194, June.
- Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, 03.
- Gary Bornstein & Ilan Yaniv, 1998. "Individual and Group Behavior in the Ultimatum Game: Are Groups More â€œRationalâ€ Players?," Experimental Economics, Springer, vol. 1(1), pages 101-108, June.
- Abbink, Klaus & Abdolkarim Sadrieh, 1995. "RatImage - research Assistance Toolbox for Computer-Aided Human Behavior Experiments," Discussion Paper Serie B 325, University of Bonn, Germany.
- Blinder, Alan S & Morgan, John, 2005. "Are Two Heads Better than One? Monetary Policy by Committee," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(5), pages 789-811, October.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (BGSE Office).
If references are entirely missing, you can add them using this form.