Do Groups Fall Prey to the Winner's Curse?
AbstractIn an experiment, we studied how small groups tackle a company takeover game, a task where participants deciding in isolation frequently exhibit the winner’s curse. We found that groups of three members, who could exchange opinions and chat, substantially reduced the winner's curse and generally placed better bids than individuals. We report that risk attitude cannot account for the group improvement and that learning from simply observing others' bids improved group performance only marginally. We examined the decisional processes that drove the improvement in group performance, including a detailed content analysis of group communication. When there was disagreement within a group, what prevailed was not the best but the median opinion. Hence, although groups in this task underperformed with respect to a “truth wins” benchmark, they outperformed individuals deciding in isolation.
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Bibliographic InfoPaper provided by McMaster University in its series Department of Economics Working Papers with number 2009-18.
Length: 45 pages
Date of creation: Dec 2009
Date of revision:
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Winner’s Curse; Takeover Game; Group Decision Making; Communication; Experiments;
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
- D03 - Microeconomics - - General - - - Behavioral Economics; Underlying Principles
- D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
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- Cheung, Stephen L. & Palan, Stefan, 2009.
"Two Heads Are Less Bubbly than One: Team Decision-Making in an Experimental Asset Market,"
IZA Discussion Papers
4507, Institute for the Study of Labor (IZA).
- Stephen Cheung & Stefan Palan, 2012. "Two heads are less bubbly than one: team decision-making in an experimental asset market," Experimental Economics, Springer, vol. 15(3), pages 373-397, September.
- Cheung, Stephen L. & Palan, Stefan, 2011. "Two heads are less bubbly than one: Team decision-making in an experimental asset market," Working Papers 2011-08, University of Sydney, School of Economics.
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