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Groups Make Better Self-Interested Decisions

Author

Listed:
  • Gary Charness
  • Matthias Sutter

Abstract

In this paper, we describe what economists have learned about differences between group and individual decision-making. This literature is still young, and in this paper, we will mostly draw on experimental work (mainly in the laboratory) that has compared individual decision-making to group decision-making, and to individual decision-making in situations with salient group membership. The bottom line emerging from economic research on group decision-making is that groups are more likely to make choices that follow standard game-theoretic predictions, while individuals are more likely to be influenced by biases, cognitive limitations, and social considerations. In this sense, groups are generally less "behavioral" than individuals. An immediate implication of this result is that individual decisions in isolation cannot necessarily be assumed to be good predictors of the decisions made by groups. More broadly, the evidence casts doubts on traditional approaches that model economic behavior as if individuals were making decisions in isolation.

Suggested Citation

  • Gary Charness & Matthias Sutter, 2012. "Groups Make Better Self-Interested Decisions," Journal of Economic Perspectives, American Economic Association, vol. 26(3), pages 157-176, Summer.
  • Handle: RePEc:aea:jecper:v:26:y:2012:i:3:p:157-76
    Note: DOI: 10.1257/jep.26.3.157
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    References listed on IDEAS

    as
    1. Kugler, Tamar & Bornstein, Gary & Kocher, Martin G. & Sutter, Matthias, 2007. "Trust between individuals and groups: Groups are less trusting than individuals but just as trustworthy," Journal of Economic Psychology, Elsevier, vol. 28(6), pages 646-657, December.
    2. Martin G. Kocher & Matthias Sutter, 2005. "The Decision Maker Matters: Individual Versus Group Behaviour in Experimental Beauty-Contest Games," Economic Journal, Royal Economic Society, vol. 115(500), pages 200-223, January.
    3. Roman Sheremeta & Jingjing Zhang, 2010. "Can groups solve the problem of over-bidding in contests?," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 35(2), pages 175-197, July.
    4. Kocher, Martin & Strau[ss], Sabine & Sutter, Matthias, 2006. "Individual or team decision-making--Causes and consequences of self-selection," Games and Economic Behavior, Elsevier, vol. 56(2), pages 259-270, August.
    5. Barton H. Hamilton & Jack A. Nickerson & Hideo Owan, 2003. "Team Incentives and Worker Heterogeneity: An Empirical Analysis of the Impact of Teams on Productivity and Participation," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 465-497, June.
    6. repec:feb:artefa:0110 is not listed on IDEAS
    7. John A. List, 2011. "Why Economists Should Conduct Field Experiments and 14 Tips for Pulling One Off," Journal of Economic Perspectives, American Economic Association, vol. 25(3), pages 3-16, Summer.
    8. Gary Charness & Edi Karni & Dan Levin, 2007. "Individual and group decision making under risk: An experimental study of Bayesian updating and violations of first-order stochastic dominance," Journal of Risk and Uncertainty, Springer, vol. 35(2), pages 129-148, October.
    9. Charness, Gary & Karni, Edi & Levin, Dan, 2010. "On the conjunction fallacy in probability judgment: New experimental evidence regarding Linda," Games and Economic Behavior, Elsevier, vol. 68(2), pages 551-556, March.
    10. David J. Cooper & John H. Kagel, 2005. "Are Two Heads Better Than One? Team versus Individual Play in Signaling Games," American Economic Review, American Economic Association, vol. 95(3), pages 477-509, June.
    11. Jonathan E. Alevy & Michael S. Haigh & John A. List, 2007. "Information Cascades: Evidence from a Field Experiment with Financial Market Professionals," Journal of Finance, American Finance Association, vol. 62(1), pages 151-180, February.
    12. Bengt Holmstrom, 1982. "Moral Hazard in Teams," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 324-340, Autumn.
    13. Philip Babcock & Kelly Bedard & Gary Charness & John Hartman & Heather Royer, 2015. "Letting Down The Team? Social Effects Of Team Incentives," Journal of the European Economic Association, European Economic Association, vol. 13(5), pages 841-870, October.
    14. David Laibson, 1997. "Golden Eggs and Hyperbolic Discounting," The Quarterly Journal of Economics, Oxford University Press, vol. 112(2), pages 443-478.
    15. Steven D. Levitt & John A. List, 2007. "What Do Laboratory Experiments Measuring Social Preferences Reveal About the Real World?," Journal of Economic Perspectives, American Economic Association, vol. 21(2), pages 153-174, Spring.
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    More about this item

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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