One of the key functions of deliberating groups is the bringing together of people who have independently obtained information on some risk that commonly affects them. Presumably, when such groups effectively aggregate information, this allows their members to respond better to the risk. But is this what happens in reality? How do people actually use information received from others?
In this Nottingham School of Economics working paper Spiros Bougheas, Jeroen Nieboer and Martin Sefton report the design and results of a controlled laboratory experiment examining risk-taking and information aggregation in groups facing such a common risk. The experiment examines how subjects respond to new information, in the form of both privately observed signals and signals reported from others. In the latter case the authors vary group communication, allowing group members to either freely communicate or restricting them to simple direct reports of information. Subjects generally respond intuitively to information they receive privately. Subjects also readily share their signals with their group - there is no systematic evidence of strategic reporting. In particular, the hypothesis that many of our subjects act in line with rational Bayesian updating cannot be rejected. When subjects can communicate freely a striking degree of consensus is observed: in most groups all members make the same choice. Further, when subjects can freely communicate there is a systematic bias towards changing one's decision away from the direction predicted by their private signal: 'reverse confirmation bias'. Without free-form communication changes in risk taking are equally likely to occur in either direction. The pattern of choices across different stages of the experiment suggests that the high degree of group consensus is partly due to persuasive arguments of other group members and partly due to social preferences over risk.
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CeDEx Discussion Paper 2015-07, Risk Taking and Information Aggregation in Groups by Spiros Bougheas, Jeroen Nieboer and Martin Sefton
Spiros Bougheas, Jeroen Nieboer and Martin Sefton
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Posted on Friday 1st May 2015