Barking up the right tree: Are small groups rational agents?

Cox, James C.; Hayne, Stephen C.

doi:10.1007/s10683-006-9123-3

Cited by 86 publications

(72 citation statements)

References 30 publications

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“…In Cox and Hayne (2006) Note: In the 5-value treatment, optimal bid includes 60 and 61; winner's curse bids are in the ranges [58,59], [74, 89] and [95, 360]. In the 100-value treatment, optimal bids are in the range [31,53] and winner's curse bids are in the range [64,360].…”

Section: Discussionmentioning

confidence: 99%

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Same process, different outcomes: group performance in an acquiring a company experiment

2015

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. The Institute for the Study of Labor (IZA) in Bonn is a local and virtual international research center and a place of communication between science, politics and business. IZA is an independent nonprofit organization supported by Deutsche Post Foundation. The center is associated with the University of Bonn and offers a stimulating research environment through its international network, workshops and conferences, data service, project support, research visits and doctoral program. IZA engages in (i) original and internationally competitive research in all fields of labor economics, (ii) development of policy concepts, and (iii) dissemination of research results and concepts to the interested public. Terms of use: Documents in D I S C U S S I O N P A P E R S E R I EIZA Discussion Papers often represent preliminary work and are circulated to encourage discussion. Citation of such a paper should account for its provisional character. A revised version may be available directly from the author. We report that in an Acquiring a Company game, what prevailed when there was disagreement among group members was the median proposal and not the best proposal. This aggregation rule explains why groups underperformed with respect to a "truth wins" benchmark and why they performed better than individuals deciding in isolation in a simple version of the task but worse in the more difficult version. Implications are drawn on when to employ groups rather than individuals in decision making. JEL Classification:C91, C92, D03, D81

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Section: Discussionmentioning

confidence: 99%

“…Cox and Hayne (2006) compare the performance of individuals and groups of five members in a sealed-bid common value auction. Groups performed better when the information was common to all group members rather than when there was a need of information sharing within the group.…”

Section: Literature Reviewmentioning

confidence: 99%

Same process, different outcomes: group performance in an acquiring a company experiment

2015

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“…On the one hand, groups in a Bertrand pricing game converge more slowly to the competitive equilibrium than individuals do (Bornstein and Gneezy 2002). 2 In addition, groups more easily fall prey to the winner's curse in common value auctions than individuals do (Cox and Hayne 2006;Sutter et al 2008). On the other hand, groups behave significantly more strategically than individuals do in a signaling game (Cooper & Kagel 2005).…”

Section: Introductionmentioning

confidence: 99%

Cartel formation and pricing: The effect of managerial decision-making rules

Gillet

Schram

Sonnemans

2011

International Journal of Industrial Organization

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We experimentally investigate how the managerial decision making process affects choices in a Bertrand pricing game with an opportunity to form non-binding cartels. To do so we compare the effects of three decision-making rules for the firm (decisions by CEOs, majority rule and consensus) to each other and to decisions in a benchmark consisting of single-individual firms. It has been argued elsewhere that groups behave more competitively than individuals. In this setting this predicts that for all three decision-making rules we should observe fewer cartels and lower prices. This is not what we find. For the formation of cartels, there are no differences across treatments. For prices asked, we find that first, cartels lead to higher prices in al treatments, despite the fact that they are non-binding. Second, the decision-making rules strongly affect the prices asked. One thing that stands out is that firms run by CEOs ask higher prices than observed in the other treatments.JEL Codes: C92; L40; L2

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“…Casari et al (2009) find that groups perform better than individuals in handling the winner's curse problem in the context of the company takeover game. 4 On the other hand, in a common value auction, Cox and Hayne (2006) document that groups bid more competitively than individuals which leads to significantly lower profits. Sutter et al (2009) also report that groups stay longer in an ascending sealed-bid English auction, bid higher, and thus make fewer profits than individuals.…”

Section: Introductionmentioning

confidence: 99%

Can Groups Solve the Problem of Over-Bidding in Contests?

Sheremeta

Zhang

2009

SSRN Journal

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This study reports an experiment that examines whether groups can better comply with theoretical predictions than individuals in contests. Our experiment replicates previous findings that individual players significantly overbid relative to theoretical predictions, incurring substantial losses. There is high variance in individual bids and strong heterogeneity across individual players. The new findings of our experiment are that groups make 25% lower bids, their bids have lower variance, and group bids are less heterogeneous than individual bids. Therefore, groups receive significantly higher and more homogeneous payoffs than individuals. We elicit individual and group preferences towards risk using simple lotteries. The results indicate that groups make less risky decisions, which is a possible explanation for lower bids in contests. Most importantly, we find that groups learn to make lower bids from communication and negotiation between group members. AbstractThis study reports an experiment that examines whether groups can better comply with theoretical predictions than individuals in contests. Our experiment replicates previous findings that individual players significantly overbid relative to theoretical predictions, incurring substantial losses. There is high variance in individual bids and strong heterogeneity across individual players. The new findings of our experiment are that groups make 25% lower bids, their bids have lower variance, and group bids are less heterogeneous than individual bids. Therefore, groups receive significantly higher and more homogeneous payoffs than individuals. We elicit individual and group preferences towards risk using simple lotteries. The results indicate that groups make less risky decisions, which is a possible explanation for lower bids in contests. Most importantly, we find that groups learn to make lower bids from communication and negotiation between group members.JEL Classifications: C72, C91, C92, D72

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Barking up the right tree: Are small groups rational agents?

Abstract: Both mainstream economics and its critics have focused on models of individual

Cited by 86 publications

References 30 publications

Same process, different outcomes: group performance in an acquiring a company experiment

Same process, different outcomes: group performance in an acquiring a company experiment

Cartel formation and pricing: The effect of managerial decision-making rules

Can Groups Solve the Problem of Over-Bidding in Contests?

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