Dynamics of Group Decision-Making

Abstract

This thesis comprises three chapters, all focused on Microeconomic Theory, specifically the dynamics of decision-making. The first explores how the desire for conformity results in long-run misperceptions due to uninformative decision-making. The second chapter studies multi-project collaborative experimentation. The final chapter analyzes whether decentralized organizations should utilize sequential or concurrent decision-making. The first chapter notes that in many settings, individuals imitate their peers’ public decisions for one or both of two reasons: to adapt to a common fundamental state, and to conform to their peers’ preferences. In this model, the fundamental state and peers’ preferences are unknown, and the players learn these random variables by observing others’ decisions. With each additional decision, the public beliefs about these unknowns become more precise. This increased precision endogenously increases the desire to conform and can result in decisions that are uninformative about a player’s preferences or perceptions of the fundamental state. When this occurs, social learning about peers’ preferences and fundamentals ceases prematurely, resulting in inefficient decisions. In line with findings from social psychology, I show that interventions aimed at correcting misperceptions of peers’ preferences may lead to more efficient decision-making in settings where interventions aimed at correcting misperceptions of the fundamental state may have no effect. The second chapter (joint with Charles Angelucci) analyzes collaborative experimentation across multiple independent domains. Each domain contains infinitely many potential projects with asymmetric benefits. In each period and domain, two players can idle, jointly explore a new project, or jointly exploit a known one, with voluntary transfers. For intermediate discount factors, treating domains as independent during experimentation is suboptimal. The optimal experimentation policy exhibits common features of collaborative experimentation: lengthy exploration, temporary project exploitation, recall of past projects, and inefficient initial or terminal idling within certain domains. We connect these findings to research on buyer-supplier dynamics and persistent productivity differences. The final chapter examines how the timing of decision-making shapes the allocation of decision rights within an organization. Here, I analyze concurrent versus sequential decision-making in a model where two units first communicate and then make decisions, attempting to both adapt to their local conditions and coordinate with their partner. Sequential decision-making improves overall information sharing compared to concurrent decisionmaking. However, first movers also have an incentive to over-adapt to their state, knowing second movers will conform to their decision. A surplus-maximizing headquarters prefers sequential decision-making to concurrent if and only if (i) the two units’ local conditions have sufficiently different volatilities and (ii) their need to coordinate is sufficiently asymmetric or low. Finally, sequential decision-making is shown to be optimal even when allowing for additional governance structures involving the reallocation of decision rights across the units and the headquarters and is shown to render some commonly-analyzed forms of decentralization sub-optimal. JEL Classification Numbers: C72, D83, D90