Do Groups Make Wise Decisions?

Daniel Evans () and Georg Schneider ()
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Daniel Evans: University of Bonn
Georg Schneider: University of Bonn

No 436, ECONtribute Discussion Papers Series from University of Bonn and University of Cologne, Germany

Abstract: Many important decisions are made jointly by groups. While groups can draw on and discuss diverse perspectives, they may also suffer from counterproductive dynamics, such as herding and gridlock. To investigate this tension, we study three features that distinguish joint from individual decision-making: composition, communication, and collaborative aggregation. Simple comparisons between joint and individual decisions cannot distinguish their effects. To separate them, we design an experiment in which subjects construct portfolios to maximize returns and minimize volatility, first individually and then in one of three decision modes; each mode differs from adjacent modes by a single feature. We find that composition drives the benefits of joint decision-making: simply pooling two individuals' independent submissions together reduces portfolio concentration and volatility. Communication attenuates these gains by inducing partners to converge on similar portfolios and to prioritize maximizing returns over managing risk. Collaborative aggregation has little effect on average, but is beneficial when partners hold differing beliefs. Disentangling these features reveals an offsetting cost of communication that limits the ability of groups to make full use of members' inputs.

Keywords: Group decision-making; Wisdom of crowds; Communication; Portfolio choice (search for similar items in EconPapers)
JEL-codes: C92 D70 D91 G41 M54 (search for similar items in EconPapers)
Pages: 111 pages
Date: 2026-10
New Economics Papers: this item is included in nep-exp
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Persistent link: https://EconPapers.repec.org/RePEc:ajk:ajkdps:436

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