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Who follows the crowd—Groups or individuals?

Author

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  • Fahr, René
  • Irlenbusch, Bernd
Abstract
In games of social learning individuals tend to give too much weight to their own private information relative to the information that is conveyed by the choices of others (Weizsäcker, 2010). In this paper we investigate differences between individuals and small groups as decision makers in information cascade situations. In line with results from social psychology as well as results on Bayesian decision making (Charness et al., 2006) we find that groups behave more rationally than individuals. Groups, in particular, are able to abandon their own private signals more often than individuals when it is rational to do so. Our results indicate that the intellective part of the decision task contributes slightly more to the superior performance of groups than the judgmental part. Our findings have potential implications for the design of decision making processes in organisations, finance and other economic settings.

Suggested Citation

  • Fahr, René & Irlenbusch, Bernd, 2011. "Who follows the crowd—Groups or individuals?," Journal of Economic Behavior & Organization, Elsevier, vol. 80(1), pages 200-209.
    • Handle: RePEc:eee:jeborg:v:80:y:2011:i:1:p:200-209
    DOI: 10.1016/j.jebo.2011.03.007
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    Cited by:

    1. Anthony Ziegelmeyer & Christoph March & Sebastian Kr?gel, 2013. "Do We Follow Others When We Should? A Simple Test of Rational Expectations: Comment," American Economic Review, American Economic Association, vol. 103(6), pages 2633-2642, October.
    2. Faralla, Valeria & Borà, Guido & Innocenti, Alessandro & Novarese, Marco, 2020. "Promises in group decision making," Research in Economics, Elsevier, vol. 74(1), pages 1-11.
    3. Siegfried K. Berninghaus & Werner Güth & Charlotte Klempt & Kerstin Pull, 2017. "Assessing Mental Models via Recording Decision Deliberations of Pairs," Homo Oeconomicus: Journal of Behavioral and Institutional Economics, Springer, vol. 34(2), pages 97-115, November.
    4. Haoran He & Marie Claire Villeval, 2014. "Are teams less inequality averse than individuals?," Post-Print halshs-01077253, HAL.
    5. Kugler, Tamar & Kausel, E.E. & Kocher, Martin G., 2012. "Are groups more rational than individuals? A review of interactive decision making in groups," Munich Reprints in Economics 18215, University of Munich, Department of Economics.
    6. Stöckl, Thomas & Huber, Jürgen & Kirchler, Michael & Lindner, Florian, 2015. "Hot hand and gambler's fallacy in teams: Evidence from investment experiments," Journal of Economic Behavior & Organization, Elsevier, vol. 117(C), pages 327-339.
    7. Sebastian Berger & Christoph Feldhaus & Axel Ockenfels, 2018. "A shared identity promotes herding in an information cascade game," Journal of the Economic Science Association, Springer;Economic Science Association, vol. 4(1), pages 63-72, July.
    8. Diefeng Peng & Yulei Rao & Xianming Sun & Erte Xiao, 2019. "Optional Disclosure and Observational Learning," Monash Economics Working Papers 05-18, Monash University, Department of Economics.
    9. Cao, Qian & Li, Jianbiao & Niu, Xiaofei, 2019. "The role of overconfidence in overweighting private information: Does gender matter?," EconStor Preprints 203448, ZBW - Leibniz Information Centre for Economics.
    10. Georg Weizsacker, 2010. "Do We Follow Others When We Should? A Simple Test of Rational Expectations," American Economic Review, American Economic Association, vol. 100(5), pages 2340-2360, December.
    11. Brosig-Koch, Jeannette & Heinrich, Timo & Helbach, Christoph, 2014. "Does truth win when teams reason strategically?," Economics Letters, Elsevier, vol. 123(1), pages 86-89.
    12. Meub, Lukas & Proeger, Till & Hüning, Hendrik, 2013. "A comparison of endogenous and exogenous timing in a social learning experiment," University of Göttingen Working Papers in Economics 167, University of Goettingen, Department of Economics.
    13. van Dijk, Frans & Sonnemans, Joep & Bauw, Eddy, 2014. "Judicial error by groups and individuals," Journal of Economic Behavior & Organization, Elsevier, vol. 108(C), pages 224-235.
    14. Meub, Lukas & Proeger, Till, 2017. "The impact of communication regimes and cognitive abilities on group rationality: Experimental evidence," Journal of Economic Behavior & Organization, Elsevier, vol. 135(C), pages 229-238.
    15. Fochmann, Martin & Fochmann, Nadja & Kocher, Martin G. & Müller, Nadja, 2021. "Dishonesty and risk-taking: Compliance decisions of individuals and groups," Journal of Economic Behavior & Organization, Elsevier, vol. 185(C), pages 250-286.
    16. Lukas Meub & Till Proeger & Hendrik Hüning, 2017. "A comparison of endogenous and exogenous timing in a social learning experiment," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 12(1), pages 143-166, April.
    17. Duffy, John & Hopkins, Ed & Kornienko, Tatiana, 2021. "Lone wolf or herd animal? Information choice and learning from others," European Economic Review, Elsevier, vol. 134(C).
    18. Ayala Arad & Kevin P. Grubiak & Stefan P. Penczynski, 2024. "Does communicating within a team influence individuals’ reasoning and decisions?," Experimental Economics, Springer;Economic Science Association, vol. 27(1), pages 109-129, March.
    19. He, Haoran & Villeval, Marie Claire, 2017. "Are group members less inequality averse than individual decision makers?," Journal of Economic Behavior & Organization, Elsevier, vol. 138(C), pages 111-124.
    20. Meub, Lukas & Proeger, Till, 2014. "The impact of communication regimes on group rationality: Experimental evidence," University of Göttingen Working Papers in Economics 185, University of Goettingen, Department of Economics.
    21. Van Parys, Jessica & Ash, Elliott, 2018. "Sequential decision-making with group identity," Journal of Economic Psychology, Elsevier, vol. 69(C), pages 1-18.
    22. Haoran He & Marie Claire Villeval, 2014. "Are team members less inequality averse than individual decision makers?," Working Papers halshs-00996545, HAL.

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    More about this item

    Keywords

    Information cascades; Herding; Group behaviour;
    All these keywords.

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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