Two heads are less bubbly than one: Team decision-making in an experimental asset market
AbstractIn the world of mutual funds management, responsibility for investment decisions is increasingly entrusted to small teams instead of individuals. Yet the effect of team decision-making in a market environment has never been studied in a controlled experiment. In this paper, we investigate the effect of team decision-making in an asset market experiment that has long been known to reliably generate price bubbles and crashes in markets populated by individuals. We find that this tendency is substantially reduced when each decision-making unit is instead a team of two. This holds across a broad spectrum of measures of the severity of mispricing, both under a continuous double-auction institution and in a call market. The result is not driven by reduced turnover due to time required for deliberation by teams, and continues to hold even when subjects are experienced. Our result also holds not only when our teams treatments are compared to the ‘narrow' baseline provided by the corresponding individuals treatments, but also when compared more broadly to the results of the large body of previous research on markets of this kind.
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Bibliographic InfoPaper provided by University of Sydney, School of Economics in its series Working Papers with number 2011-08.
Date of creation: Sep 2011
Date of revision:
group decision-making; price bubbles; asset market experiments;
Other versions of this item:
- 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, 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).
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-09-22 (All new papers)
- NEP-BEC-2011-09-22 (Business Economics)
- NEP-CBE-2011-09-22 (Cognitive & Behavioural Economics)
- NEP-EXP-2011-09-22 (Experimental Economics)
- NEP-NET-2011-09-22 (Network Economics)
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