Democracy under uncertainty: The ‘wisdom of crowds’ and the free-rider problem in group decision making
We introduce a game theory model of individual decisions to cooperate by contributing personal resources to group decisions versus by free-riding on the contributions of other members. In contrast to most public-goods games that assume group returns are linear in individual contributions, the present model assumes decreasing marginal group production as a function of aggregate individual contributions. This diminishing marginal returns assumption is more realistic and generates starkly different predictions compared to the linear model. One important implication is that, under most conditions, there exist equilibria where some, but not all members of a group contribute, even with completely self-interested motives. An agent-based simulation confirms the individual and group advantages of the equilibria in which behavioral asymmetry emerges from a game structure that is a priori perfectly symmetric for all agents (all agents have the same payoff function and action space, but take different actions in equilibria). And a behavioral experiment demonstrates that cooperators and free-riders coexist in a stable manner in groups performing with the non-linear production function. A collateral result demonstrates that, compared to a ―dictatorial‖ decision scheme guided by the best member in a group, the majority-plurality decision rules can pool information effectively and produce greater individual net welfare at equilibrium, even if free-riding is not sanctioned. This is an original proof that cooperation in ad hoc decision-making groups can be understood in terms of self-interested motivations and that, despite the free-rider problem, majority-plurality decision rules can function robustly as simple, efficient social decision heuristics.
|Date of creation:||2010|
|Date of revision:|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Plott, Charles & Hung, Angela, 1998.
"Information Cascades: Replication and an Extension to Majority Rule and Conformity Rewarding Institutions,"
1051, California Institute of Technology, Division of the Humanities and Social Sciences.
- Angela A. Hung & Charles R. Plott, 2001. "Information Cascades: Replication and an Extension to Majority Rule and Conformity-Rewarding Institutions," American Economic Review, American Economic Association, vol. 91(5), pages 1508-1520, December.
- Abhijit V. Banerjee, 1992. "A Simple Model of Herd Behavior," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 797-817.
- Ernst Fehr & Simon Gaechter, .
"Cooperation and Punishment in Public Goods Experiments,"
IEW - Working Papers
010, Institute for Empirical Research in Economics - University of Zurich.
- Simon Gachter & Ernst Fehr, 2000. "Cooperation and Punishment in Public Goods Experiments," American Economic Review, American Economic Association, vol. 90(4), pages 980-994, September.
- Ernst Fehr & Simon Gaechter, 1999. "Cooperation and Punishment in Public Goods Experiments," CESifo Working Paper Series 183, CESifo Group Munich.
- Timothy Feddersen & Wolfgang Pesendorfer, 1996. "Convicting the Innocent: The Inferiority of Unanimous Jury Verdicts," Discussion Papers 1170, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
- Cason, T.N. & Saijo, T. & Yamato, T., 1998.
"Voluntary Participation and Spite in Public Good Provision Experiments: an International Comparison,"
98-002, Purdue University, Krannert School of Management - Center for International Business Education and Research (CIBER).
- Timothy Cason & Tatsuyoshi Saijo & Takehiko Yamato, 2002. "Voluntary Participation and Spite in Public Good Provision Experiments: An International Comparison," Experimental Economics, Springer;Economic Science Association, vol. 5(2), pages 133-153, October.
- Cason, T.N. & Saijo, T. & Yamato, T., 2000. "Voluntary Participation and Spite in Public Good Provision Experiments: an International Comparison," ISER Discussion Paper 0491, Institute of Social and Economic Research, Osaka University.
- Cason, Timothy N. & Saijo, Tatsuyoshi & Yamato, Takehiko & Yokotani, Konomu, 2004.
"Non-excludable public good experiments,"
Games and Economic Behavior,
Elsevier, vol. 49(1), pages 81-102, October.
- Saijo, Tatsuyoshi & Yamato, Takehiko & Yokotani, Konomu & Cason, Timothy N., 2002. "Non-Excludable Public Good Experiments," Working Papers 1154, California Institute of Technology, Division of the Humanities and Social Sciences.
- Tatsuyoshi Saijo, 2003. "Non-Excludable Public Good Experiments," Theory workshop papers 505798000000000027, UCLA Department of Economics.
- Sefton, Martin & Steinberg, Richard, 1996. "Reward structures in public good experiments," Journal of Public Economics, Elsevier, vol. 61(2), pages 263-287, August.
- Irving Lorge & Herbert Solomon, 1955. "Two models of group behavior in the solution of eureka-type problems," Psychometrika, Springer;The Psychometric Society, vol. 20(2), pages 139-148, June.
- Opp, Karl-Dieter, 2001. "Why Do People Vote? The Cognitive-Illusion Proposition and Its Test," Kyklos, Wiley Blackwell, vol. 54(2-3), pages 355-78.
- Laury, Susan K & Walker, James M & Williams, Arlington W, 1999. "The Voluntary Provision of a Pure Public Good with Diminishing Marginal Returns," Public Choice, Springer, vol. 99(1-2), pages 139-60, April.
- Fehr, Ernst & Schmidt, Klaus M., 1999.
"A theory of fairness, competition, and cooperation,"
Munich Reprints in Economics
20650, University of Munich, Department of Economics.
- Fehr, Ernst & Schmidt, Klaus M., . "A theory of fairness, competition, and cooperation," Chapters in Economics, University of Munich, Department of Economics.
- Ernst Fehr & Klaus M. Schmidt, 1999. "A Theory of Fairness, Competition, and Cooperation," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 817-868.
- Fehr, Ernst & Schmidt, Klaus M., 1998. "A Theory of Fairness, Competition and Cooperation," CEPR Discussion Papers 1812, C.E.P.R. Discussion Papers.
- Ernst Fehr & Klaus M. Schmidt, . "A Theory of Fairness, Competition and Cooperation," IEW - Working Papers 004, Institute for Empirical Research in Economics - University of Zurich.
- Spyros Makridakis & Robert L. Winkler, 1983. "Averages of Forecasts: Some Empirical Results," Management Science, INFORMS, vol. 29(9), pages 987-996, September.
- Anderson, Lisa R & Holt, Charles A, 1997. "Information Cascades in the Laboratory," American Economic Review, American Economic Association, vol. 87(5), pages 847-62, December.
- Richard P. Larrick & Jack B. Soll, 2006. "Intuitions About Combining Opinions: Misappreciation of the Averaging Principle," Management Science, INFORMS, vol. 52(1), pages 111-127, January.
- Ernst Fehr & Urs Fischbacher, 2004. "Social norms and human cooperation," Macroeconomics 0409026, EconWPA.
- Amrita Dhillon & Susana Peralta, 2002.
"Economic Theories Of Voter Turnout,"
Royal Economic Society, vol. 112(480), pages F332-F352, June.
- Mueller,Dennis C., 2003. "Public Choice III," Cambridge Books, Cambridge University Press, number 9780521894753, Junio.
- Sushil Bikhchandani & David Hirshleifer & Ivo Welch, 2010.
"A theory of Fads, Fashion, Custom and cultural change as informational Cascades,"
Levine's Working Paper Archive
1193, David K. Levine.
- Bikhchandani, Sushil & Hirshleifer, David & Welch, Ivo, 1992. "A Theory of Fads, Fashion, Custom, and Cultural Change in Informational Cascades," Journal of Political Economy, University of Chicago Press, vol. 100(5), pages 992-1026, October.
- Laury, Susan K. & Holt, Charles A., 2008. "Voluntary Provision of Public Goods: Experimental Results with Interior Nash Equilibria," Handbook of Experimental Economics Results, Elsevier.
- Saijo, Tatsuyoshi & Yamato, Takehiko, 1999. "A Voluntary Participation Game with a Non-excludable Public Good," Journal of Economic Theory, Elsevier, vol. 84(2), pages 227-242, February.
- Gary Bornstein, 2002. "Intergroup conflict: Individual, group and collective interests," Discussion Paper Series dp297, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:26584. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.