Group-Shift and the Consensus Effect, Second Version

David Dillenberger (ddill@econ.upenn.edu) and Colin Raymond (craymond@amherst.edu)
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David Dillenberger: Department of Economics, University of Pennsylvania
Colin Raymond: Department of Economics, Amherst University

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: Individuals often tend to conform to the choices of others in group decisions, compared to choices made in isolation, giving rise to phenomena such as group polarization and the bandwagon effect. We show that this behavior, which we term the consensus effect, is equivalent to a well-known violation of expected utility, namely strict quasi-convexity of preferences. In contrast to the equilibrium outcome when individuals are expected utility maximizers, quasi-convexity of preferences imply that group decisions may fail to properly aggregate preferences and strictly Pareto-dominated equilibria may arise. Moreover, these problems become more severe as the size of the group grows.

Keywords: Aggregation of Preferences; Choice Shifts in Groups; Consensus Effect; Non-Expected Utility; Quasi-Convex Preferences (search for similar items in EconPapers)
JEL-codes: D71 D81 (search for similar items in EconPapers)
Pages: 40 pages
Date: 2016-09-30, Revised 2016-09-30
New Economics Papers: this item is included in nep-cdm, nep-gth, nep-mic and nep-upt
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