Individuals, groups, and decisions

Imagine buying something from a friend: do you think you’d give him a better or worse offer than you’d give a stranger? Would you buy something you might not normally want if pressured into it by a friend?  The thing is, our preferences and decisions aren’t consistent from moment to moment, they’re always changing.  One pet interest of mine has long been how decisions change when in groups than when alone.  Do we make the same decisions?

It turns out that we don’t.  People in groups are more akin to ruthless machines, making the economically “rational” self-interested decision even when the socially-optimal decision is something else.  Take, for example, the Trust and Ultimatum games.  Whereas people – westerners, at least – tend to make more pro-social offers, sharing and avoiding pure self-interest, when a group of individuals make a decision, they’re more likely to make the ‘rational’ decision and screw the other group.  Groups of people favor themselves, even when the individuals in the groups may have been willing to share if on their own.  When you consider that a lot of our economy is built on how much we trust each other, this could be a bad thing.

But it’s not all bad!  Groups of individuals may choose the economically optimal decision – but sometimes this decision is good for everyone.  Take games that have multiple equilibria, especially ones that require coordination.  When individuals are playing in groups for a coordination game, they are more likely to be able to coordinate with the other group in order to help everybody.  Even an individual that is simply on their own, but identified as part of some group, will be able to coordinate better.

Humans strongly identify with in- and against out-groups, and it shouldn’t be surprising to anyone with a knowledge of psychology that people in groups may be more self-interested.  But what is interesting is how often the self-interest helps everyone.  In general, in conditions where there is a unique pure-strategy equilibrium, the group will find this equilibrium and hurt everybody.  In conditions where there are multiple equilibria that require coordination, groups will be more efficient and help everybody.  Groups are better at strategizing, better at taking into account (so far) unchosen strategies, and better at anticipating the actions of other groups.

There are a few different possible explanations for this.  It could be – and is extremely likely – that there are strong in-group versus out-group effects.  It could be that being in a group increases the motivation of individuals.  But then there’s a new study in Nature that suggests a possible alternative: that the individuals are being given more time to think about their decision, and people who are given more time to think are more self-interested.  Not that this should be a surprise to those with beer-goggles.

If you just strap a single person down, and ask them to play a social dilemma game, GO NOW FAST!  They will make a choice and it will, more often than not, be somewhat fair.  If you strap that person down, and ask them to play, but hey, take your time?  They’ll think about it, maybe, who knows, nurse some grievances, and decide that they are more important and be less fair.  In fact – and I think this is way cool – if you look at their data, how much people are willing to give is almost perfectly negatively linearly correlated with the logarithm of the decision time.  I mean, look at this beauty:

And maybe this can partly explain what is happening with the groups: they’re simply given more time to rationalize their decisions.  I’m sure that’s not everything – as I said, in-group effects are strong in people – but it is a lot.  It turns out that the two great rationalizers are taking your time, and worrying about your group.

G Charness & M Sutter (2012). Groups make better self-interested decisions Journal of Economic Perspectives DOI: 10.1257/jep.26.3.157
Rand DG, Greene JD, & Nowak MA (2012). Spontaneous giving and calculated greed. Nature, 489 (7416), 427-30 PMID: 22996558

3 thoughts on “Individuals, groups, and decisions

  1. Pingback: Individuals, groups, and decisions | Evidence-Based Management Blog

  2. The JEP article is a good read. yet I am perplexed…

    “Groups of individuals may choose the economically optimal decision – but sometimes this decision is good for everyone.”

    Heaven forbid!! In all seriousness this proposition is not surprising to anyone with a passing familiarity with academic economics. Pareto efficient just means that there are no ways to make anyone better off without creating a trade off between their welfare and anothers. Explain why that is not an admirable policy goal and why such a proposition could be unusual?

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