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Who follows the crowd—Groups or individuals?

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  • Fahr, René
  • Irlenbusch, Bernd

Abstract

In games of social learning individuals tend to give too much weight to their own private information relative to the information that is conveyed by the choices of others (Weizsäcker, 2010). In this paper we investigate differences between individuals and small groups as decision makers in information cascade situations. In line with results from social psychology as well as results on Bayesian decision making (Charness et al., 2006) we find that groups behave more rationally than individuals. Groups, in particular, are able to abandon their own private signals more often than individuals when it is rational to do so. Our results indicate that the intellective part of the decision task contributes slightly more to the superior performance of groups than the judgmental part. Our findings have potential implications for the design of decision making processes in organisations, finance and other economic settings.

Suggested Citation

  • Fahr, René & Irlenbusch, Bernd, 2011. "Who follows the crowd—Groups or individuals?," Journal of Economic Behavior & Organization, Elsevier, vol. 80(1), pages 200-209.
  • Handle: RePEc:eee:jeborg:v:80:y:2011:i:1:p:200-209
    DOI: 10.1016/j.jebo.2011.03.007
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Haoran He & Marie Claire Villeval, 2014. "Are teams less inequality averse than individuals?," Post-Print halshs-01077253, HAL.
    2. Anthony Ziegelmeyer & Christoph March & Sebastian Kr?gel, 2013. "Do We Follow Others When We Should? A Simple Test of Rational Expectations: Comment," American Economic Review, American Economic Association, vol. 103(6), pages 2633-2642, October.
    3. repec:spr:jeicoo:v:12:y:2017:i:1:d:10.1007_s11403-015-0156-6 is not listed on IDEAS
    4. Kugler, Tamar & Kausel, E.E. & Kocher, Martin G., 2012. "Are groups more rational than individuals? A review of interactive decision making in groups," Munich Reprints in Economics 18215, University of Munich, Department of Economics.
    5. Stöckl, Thomas & Huber, Jürgen & Kirchler, Michael & Lindner, Florian, 2015. "Hot hand and gambler's fallacy in teams: Evidence from investment experiments," Journal of Economic Behavior & Organization, Elsevier, vol. 117(C), pages 327-339.
    6. He, Haoran & Villeval, Marie Claire, 2017. "Are group members less inequality averse than individual decision makers?," Journal of Economic Behavior & Organization, Elsevier, vol. 138(C), pages 111-124.
    7. Meub, Lukas & Proeger, Till, 2014. "The impact of communication regimes on group rationality: Experimental evidence," Center for European, Governance and Economic Development Research Discussion Papers 185, University of Goettingen, Department of Economics.
    8. Georg Weizsacker, 2010. "Do We Follow Others When We Should? A Simple Test of Rational Expectations," American Economic Review, American Economic Association, vol. 100(5), pages 2340-2360, December.
    9. repec:spr:homoec:v:34:y:2017:i:2:d:10.1007_s41412-017-0051-6 is not listed on IDEAS
    10. Brosig-Koch, Jeannette & Heinrich, Timo & Helbach, Christoph, 2014. "Does truth win when teams reason strategically?," Economics Letters, Elsevier, vol. 123(1), pages 86-89.
    11. Meub, Lukas & Proeger, Till & Hüning, Hendrik, 2013. "A comparison of endogenous and exogenous timing in a social learning experiment," Center for European, Governance and Economic Development Research Discussion Papers 167, University of Goettingen, Department of Economics.
    12. van Dijk, Frans & Sonnemans, Joep & Bauw, Eddy, 2014. "Judicial error by groups and individuals," Journal of Economic Behavior & Organization, Elsevier, vol. 108(C), pages 224-235.
    13. Haoran He & Marie Claire Villeval, 2014. "Are team members less inequality averse than individual decision makers?," Working Papers halshs-00996545, HAL.
    14. Meub, Lukas & Proeger, Till, 2017. "The impact of communication regimes and cognitive abilities on group rationality: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 135(C), pages 229-238.

    More about this item

    Keywords

    Information cascades; Herding; Group behaviour;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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