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Journal of Economic Perspectives: Vol. 26 No. 3 (Summer 2012)

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Groups Make Better Self-Interested Decisions

Article Citation

Charness, Gary, and Matthias Sutter. 2012. "Groups Make Better Self-Interested Decisions." Journal of Economic Perspectives, 26(3): 157-76.

DOI: 10.1257/jep.26.3.157

Abstract

In this paper, we describe what economists have learned about differences between group and individual decision-making. This literature is still young, and in this paper, we will mostly draw on experimental work (mainly in the laboratory) that has compared individual decision-making to group decision-making, and to individual decision-making in situations with salient group membership. The bottom line emerging from economic research on group decision-making is that groups are more likely to make choices that follow standard game-theoretic predictions, while individuals are more likely to be influenced by biases, cognitive limitations, and social considerations. In this sense, groups are generally less "behavioral" than individuals. An immediate implication of this result is that individual decisions in isolation cannot necessarily be assumed to be good predictors of the decisions made by groups. More broadly, the evidence casts doubts on traditional approaches that model economic behavior as if individuals were making decisions in isolation.

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Authors

Charness, Gary (U CA, Santa Barbara)
Sutter, Matthias (U Innsbruck and U Gothenburg)

JEL Classifications

D12: Consumer Economics: Empirical Analysis
D70: Analysis of Collective Decision-Making: General
D80: Information, Knowledge, and Uncertainty: General

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