Do Groups make Wise Decisions?

Many important decisions are made jointly by groups. While groups can draw on and discuss diverse perspectives, they may also suffer from counterproductive dynamics, such as herding and gridlock. To investigate this tension, we study three features that distinguish joint from individual decision-making: composition, communication, and collaborative aggregation. Simple comparisons between joint and individual decisions cannot distinguish their effects. To separate them, we design an experiment in which subjects construct portfolios to maximize returns and minimize volatility, first individually and then in one of three decision modes; each mode differs from adjacent modes by a single feature. We find that composition drives the benefits of joint decision-making: simply pooling two individuals’ independent submissions reduces portfolio concentration and volatility. Communication attenuates these gains by inducing partners to converge on similar portfolios and to prioritize maximizing returns over managing risk. Collaborative aggregation improves decision quality relative to fixed aggregation rules only among partners with differing beliefs. Disentangling these features reveals an offsetting cost of communication that limits the ability of groups to make full use of members’ inputs.

Recommended citation: Evans, D. and Schneider, G. "Do Groups make Wise Decisions?" Work in progress.