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Committees versus individuals: an experimental analysis of monetary policy decision-making

Author

Listed:
  • Lombardelli, Clare

    (Bank of England)

  • James Proudman
  • James Talbot

Abstract

We report the results of an experimental analysis of monetary policy decision-making under uncertainty. A large sample of economically literate students from the London School of Economics played a simple monetary policy game, as both individuals and committees of five players. Our findings - that groups make better decisions than individuals - accord with previous work by Blinder and Morgan. The experiment also attempted to establish why group decision-making is superior: although some improvement was related to committees taking decisions by majority voting, a significant additional committee benefit was associated with members being able to share information and observe each other's voting behaviour.

Suggested Citation

  • Lombardelli, Clare & James Proudman & James Talbot, 2003. "Committees versus individuals: an experimental analysis of monetary policy decision-making," Royal Economic Society Annual Conference 2003 142, Royal Economic Society.
  • Handle: RePEc:ecj:ac2003:142
    as

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    References listed on IDEAS

    as
    1. Anne Sibert, 2003. "Monetary Policy Committees: Individual and Collective Reputations," Review of Economic Studies, Oxford University Press, vol. 70(3), pages 649-665.
    2. Barro, Robert J. & Gordon, David B., 1983. "Rules, discretion and reputation in a model of monetary policy," Journal of Monetary Economics, Elsevier, vol. 12(1), pages 101-121.
    3. Svensson, Lars E. O. & Woodford, Michael, 2003. "Indicator variables for optimal policy," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 691-720, April.
    4. Aoki, Kosuke, 2006. "Optimal commitment policy under noisy information," Journal of Economic Dynamics and Control, Elsevier, vol. 30(1), pages 81-109, January.
    5. Aoki, Kosuke, 2003. "On the optimal monetary policy response to noisy indicators," Journal of Monetary Economics, Elsevier, vol. 50(3), pages 501-523, April.
    6. Friedman,Daniel & Sunder,Shyam, 1994. "Experimental Methods," Cambridge Books, Cambridge University Press, number 9780521456821, May.
    7. Alan S. Blinder & John Morgan, 2000. "Are Two Heads Better Than One?: An Experimental Analysis of Group vs. Individual Decisionmaking," NBER Working Papers 7909, National Bureau of Economic Research, Inc.
    8. Svensson, Lars E. O. & Woodford, Michael, 2004. "Indicator variables for optimal policy under asymmetric information," Journal of Economic Dynamics and Control, Elsevier, vol. 28(4), pages 661-690, January.
    9. Gerlach-Kristen, Petra, 2006. "Monetary policy committees and interest rate setting," European Economic Review, Elsevier, vol. 50(2), pages 487-507, February.
    10. Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522608, January.
    11. Jeff Fuhrer & George Moore, 1995. "Inflation Persistence," The Quarterly Journal of Economics, Oxford University Press, vol. 110(1), pages 127-159.
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    More about this item

    Keywords

    monetary policy; experimental economics; central banking; uncertainty;

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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