Are individuals more risk and ambiguity averse in a group environment or alone? Results from an experimental study

Abstract

This is the accepted version of the paper.This version of the publication may differ from the final published version. Most decision-making research in economics focuses on individual decisions. Yet, we know, from psychological research in particular, that individual preferences can be sensitive to social pressures. In this paper, we study the impact of a group environment on individual preferences for risky (i.e., known probabilities) and ambiguous (i.e., unknown probabilities) prospects. In our experiment, each participant was invited to make a series of lottery-choice decisions in two different conditions. In the Alone condition, individuals made private choices whereas in the Group condition, individuals belonged to a three-person group and groupmembers' choices were aggregated according to either a majority or unanimity rule. This design allows us to study the impact of a group environment on individuals' attitude towards both risky and ambiguous prospects while controlling for the decision rule used in the group. Our experimental results show that when individuals are in the Group condition, they tend to be less risk averse and more ambiguity averse than when they are not part of a group (Alone condition). Our experiment also suggests that the decision rule matters as it shows that these two trends tend to be stronger when the group implements a unanimity rule. Specifically, we found that individuals who belong to a group implementing a unanimity rule are significantly less risk averse than individuals who belong to a group that relies on the majority rule. We obtained a similar -but non-significant -result under ambiguity. Permanent repository link

Decision Process, Preferences Over Risk and Consensus Rule: A Group Experiment

“…This paper investigates whether subjects' attitude toward risk changes depending on whether decisions are taken individually or in a group. On one hand, Zhang and Casari (2012), and Brunette et al (2015) show that, if disagreement is solved on the basis of a (weak or strong) unanimity rule, subjects in the group condition tend to be less risk averse than when they are not part of a group. On the other hand Harrison et al (2012), report no significant differences between individuals and group risk aversion, if disagreement is solved on the basis of a majority rule.…”

“…group members had no veto power and they could not interact in order to reach the final decision. The results show that, if the disagreement within the group is overcome through the unanimity rule (both in weak or strong form), groups approximate the risk neutral behaviour better than individuals (Zhang and Casari, 2012;Brunette et al, 2015). If the disagreement is instead solved through majority rulesexogenously imposed -, there is no group effect (Harrison et al, 2012).…”

“…Over the last 15 years, a rich body of experimental research has focused on groups' behaviour in risky contexts (Ambrus et al, 2013;Baker et al, 2008;Charness et al, 2006;Harrison et al, 2012;Holt and Laury, 2002;Masclet et al, 2009;Shupp and Williams, 2008;Rockenbach et al, 2001). On one hand two recent studies - Zhang and Casari (2012), and Brunette et al (2015) analysed groups' decisions under risk when choices are derived through an exogenous unanimity rule. The former elicits risk preferences of groups of threemembers, where groups' decisions result from a strong form of unanimity.…”

Individual vs. group decision-making: an experiment on dynamic choice under risk and ambiguity

“…Charness et al (2013) show that ambiguity neutral agents are able to persuade the non-neutral ones to make joint, ambiguityneutral decisions, Keck et al (2014) find that groups are inclined to make more ambiguity neutral decisions and that ambiguity averse individuals tend to become ambiguity neutral after they consult with their peers. Brunette et al (2015) report that groups applying the unanimity rule are less risk averse. They found the same pattern for ambiguity but without significance.…”

“…To the best of our knowledge, this is the first study to compare individual and group decision making in a dynamic framework, under risk and ambiguity. In the field of group decision making under ambiguity, in contrast to Charness et al (2013), Keck et al (2014) and Brunette et al (2015) who compare groups and individual in a static framework, using a life-cycle experimental design, we report the first experiment that studies dynamic group decision making under ambiguity in a task that involves learning and updating of ambiguous beliefs. Generally the experimental literature on dynamic decision making under ambiguity (updating and learning) is very limited.…”