Democracy under uncertainty: The ‘wisdom of crowds’ and the free-rider problem in group decision making
AbstractWe introduce a game theory model of individual decisions to cooperate by contributing personal resources to group decisions versus by free-riding on the contributions of other members. In contrast to most public-goods games that assume group returns are linear in individual contributions, the present model assumes decreasing marginal group production as a function of aggregate individual contributions. This diminishing marginal returns assumption is more realistic and generates starkly different predictions compared to the linear model. One important implication is that, under most conditions, there exist equilibria where some, but not all members of a group contribute, even with completely self-interested motives. An agent-based simulation confirms the individual and group advantages of the equilibria in which behavioral asymmetry emerges from a game structure that is a priori perfectly symmetric for all agents (all agents have the same payoff function and action space, but take different actions in equilibria). And a behavioral experiment demonstrates that cooperators and free-riders coexist in a stable manner in groups performing with the non-linear production function. A collateral result demonstrates that, compared to a ―dictatorial‖ decision scheme guided by the best member in a group, the majority-plurality decision rules can pool information effectively and produce greater individual net welfare at equilibrium, even if free-riding is not sanctioned. This is an original proof that cooperation in ad hoc decision-making groups can be understood in terms of self-interested motivations and that, despite the free-rider problem, majority-plurality decision rules can function robustly as simple, efficient social decision heuristics.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 26584.
Date of creation: 2010
Date of revision:
group decision making under uncertainty; free-rider problem; majority-plurality rules; marginally-diminishing group returns; evolutionary games; behavioral experiment;
Find related papers by JEL classification:
- D03 - Microeconomics - - General - - - Behavioral Economics; Underlying Principles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-11-20 (All new papers)
- NEP-CDM-2010-11-20 (Collective Decision-Making)
- NEP-EXP-2010-11-20 (Experimental Economics)
- NEP-HPE-2010-11-20 (History & Philosophy of Economics)
- NEP-POL-2010-11-20 (Positive Political Economics)
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.:
- Sefton, Martin & Steinberg, Richard, 1996. "Reward structures in public good experiments," Journal of Public Economics, Elsevier, vol. 61(2), pages 263-287, August.
- Ernst Fehr & Simon Gaechter, 1999.
"Cooperation and Punishment in Public Goods Experiments,"
CESifo Working Paper Series
183, CESifo Group Munich.
- Simon Gachter & Ernst Fehr, 2000. "Cooperation and Punishment in Public Goods Experiments," American Economic Review, American Economic Association, vol. 90(4), pages 980-994, September.
- Ernst Fehr & Simon Gaechter, . "Cooperation and Punishment in Public Goods Experiments," IEW - Working Papers 010, Institute for Empirical Research in Economics - University of Zurich.
- Fehr, Ernst & Schmidt, Klaus M., 1998.
"A Theory of Fairness, Competition and Cooperation,"
CEPR Discussion Papers
1812, C.E.P.R. Discussion Papers.
- Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory Of Fairness, Competition, And Cooperation," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 817-868, August.
- Amrita Dhillon & Susana Peralta, 2002. "Economic Theories Of Voter Turnout," Economic Journal, Royal Economic Society, vol. 112(480), pages F332-F352, June.
- Timothy Cason & Tatsuyoshi Saijo & Takehiko Yamato, 2002.
"Voluntary Participation and Spite in Public Good Provision Experiments: An International Comparison,"
Springer, vol. 5(2), pages 133-153, October.
- Cason, T.N. & Saijo, T. & Yamato, T., 1998. "Voluntary Participation and Spite in Public Good Provision Experiments: an International Comparison," Papers 98-002, Purdue University, Krannert School of Management - Center for International Business Education and Research (CIBER).
- Cason, T.N. & Saijo, T. & Yamato, T., 2000. "Voluntary Participation and Spite in Public Good Provision Experiments: an International Comparison," ISER Discussion Paper 0491, Institute of Social and Economic Research, Osaka University.
- Irving Lorge & Herbert Solomon, 1955. "Two models of group behavior in the solution of eureka-type problems," Psychometrika, Springer, vol. 20(2), pages 139-148, June.
- Ernst Fehr & Urs Fischbacher, 2004. "Social norms and human cooperation," Macroeconomics 0409026, EconWPA.
- Cason, Timothy N. & Saijo, Tatsuyoshi & Yamato, Takehiko & Yokotani, Konomu, 2004.
"Non-excludable public good experiments,"
Games and Economic Behavior,
Elsevier, vol. 49(1), pages 81-102, October.
- Tatsuyoshi Saijo, 2003. "Non-Excludable Public Good Experiments," Theory workshop papers 505798000000000027, UCLA Department of Economics.
- Saijo, Tatsuyoshi & Yamato, Takehiko & Yokotani, Konomu & Cason, Timothy N., 2002. "Non-Excludable Public Good Experiments," Working Papers 1154, California Institute of Technology, Division of the Humanities and Social Sciences.
- Saijo, Tatsuyoshi & Yamato, Takehiko, 1999. "A Voluntary Participation Game with a Non-excludable Public Good," Journal of Economic Theory, Elsevier, vol. 84(2), pages 227-242, February.
- Banerjee, Abhijit V, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, MIT Press, vol. 107(3), pages 797-817, August.
- Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 2010.
"A theory of Fads, Fashion, Custom and cultural change as informational Cascades,"
Levine's Working Paper Archive
1193, David K. Levine.
- 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.
- Anderson, Lisa R & Holt, Charles A, 1997. "Information Cascades in the Laboratory," American Economic Review, American Economic Association, vol. 87(5), pages 847-62, December.
- Laury, Susan K & Walker, James M & Williams, Arlington W, 1999. " The Voluntary Provision of a Pure Public Good with Diminishing Marginal Returns," Public Choice, Springer, vol. 99(1-2), pages 139-60, April.
- Gary Bornstein, 2002. "Intergroup conflict: Individual, group and collective interests," Discussion Paper Series dp297, The Center for the Study of Rationality, Hebrew University, Jerusalem.
- Timothy Feddersen & Wolfgang Pesendorfer, 1996. "Convicting the Innocent: The Inferiority of Unanimous Jury Verdicts," Discussion Papers 1170, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Laury, Susan K. & Holt, Charles A., 2008. "Voluntary Provision of Public Goods: Experimental Results with Interior Nash Equilibria," Handbook of Experimental Economics Results, Elsevier.
- Mueller,Dennis C., 2003. "Public Choice III," Cambridge Books, Cambridge University Press, number 9780521894753.
- Richard P. Larrick & Jack B. Soll, 2006. "Intuitions About Combining Opinions: Misappreciation of the Averaging Principle," Management Science, INFORMS, vol. 52(1), pages 111-127, January.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ekkehart Schlicht).
If references are entirely missing, you can add them using this form.