Dyadic Compromise Effect

Existing research on the compromise effect has focused exclusively on the individual. This paper investigates compromise effects in a setting that involves multiple individuals making a choice. We study whether the dyadic compromise effect (DCE) exists, the association between dyadic and individual compromise effects, and strategies to mitigate the DCE. We build a statistical model of dyadic choice that formally incorporates DCE. We conduct two studies to test our proposed models empirically. In Study 1, we begin with an investigation of the DCE with student subjects. In Study 2, we test for the presence of DCE among married couples when making retirement investment choices. In both studies, model-free and model-based evidence provides strong support for the presence of DCE. A model that incorporates DCE provides a better fit than models that do not. Evidence in support of DCE is shown to be robust to alternative compromise effect model specifications and utility aggregation methods. We find that the individual compromise effect tendency of a group member with a greater stake in the decision is likely to persist as a DCE in the joint choice setting. Our findings suggest that education of segments vulnerable to compromise effects reduces the DCE.