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Synchronization in human decision making

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Abstract

Just like soldiers crossing a bridge in sync can lead to a catastrophic failure, we show via experiments, theory, and simulations, how synchronization in human decision making can lead to extreme outcomes. Individual decision making and risk taking are well known to be gender dependent. Much less is however understood about gender's impact on the creation of collective risk through aggregate decision making, where the decision of one individual can affect the decision making of other individuals, eventually leading to synchronization in behavior. To study the formation of collective risk created due to synchronization in human decision making, we have devised a series of experiments that can be analyzed and understood within a game theoretical framework. In the experiments each individual in groups of either men or women decide to buy or sell a financial asset based on an information set containing past price behavior. Risk can be generated collectively through coordination in the aggregate decision making, which leads to a price formation far from the fundamental value of the asset. Here we show how collective risks can be generated in groups of both genders, but the pathway to formation of collective risks happens through an individual risk taking which are different for groups composed of men respectively women. A priori we find that it is impossible to know whether a given group will engage in the formation of collective risk, but via a fluctuation based game theoretical framework we are able to estimate the likelihood that it will happen. Our results highlight some of the foundations for creation of excessive collective risks relevant for example in the understanding of financial systemic risks

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  • Yi-Fang Liu & Jørgen Vitting Andersen & Maxime Frolov & Philippe de Peretti, 2016. "Synchronization in human decision making," Documents de travail du Centre d'Economie de la Sorbonne 16035, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  • Handle: RePEc:mse:cesdoc:16035
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    File URL: ftp://mse.univ-paris1.fr/pub/mse/CES2016/16035.pdf
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    1. Lex Borghans & Bart H. H. Golsteyn & James J. Heckman & Huub Meijers, 2009. "Gender Differences in Risk Aversion and Ambiguity Aversion," Journal of the European Economic Association, MIT Press, vol. 7(2-3), pages 649-658, 04-05.
    2. Dwyer, Peggy D. & Gilkeson, James H. & List, John A., 2002. "Gender differences in revealed risk taking: evidence from mutual fund investors," Economics Letters, Elsevier, vol. 76(2), pages 151-158, July.
    3. Lex Borghans & Bart H.H. Golsteyn & James J. Heckman & Huub Meijers, 2009. "Gender Differences in Risk Aversion and Ambiguity," Working Papers 200903, Geary Institute, University College Dublin.
    4. Charles A. Holt & Susan K. Laury, 2002. "Risk Aversion and Incentive Effects," American Economic Review, American Economic Association, vol. 92(5), pages 1644-1655, December.
    5. Jørgen Vitting Andersen & Andrzej Nowak, 2013. "An introductory to Socio-Finance," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00853994, HAL.
    6. Charness, Gary & Gneezy, Uri, 2012. "Strong Evidence for Gender Differences in Risk Taking," Journal of Economic Behavior & Organization, Elsevier, vol. 83(1), pages 50-58.
    7. Powell, Melanie & Ansic, David, 1997. "Gender differences in risk behaviour in financial decision-making: An experimental analysis," Journal of Economic Psychology, Elsevier, vol. 18(6), pages 605-628, November.
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    More about this item

    Keywords

    collective decision making; synchronization; agent based modeling;

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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