Reference

David Dillenberger (University of Pennsylvania), “Group-Shift and the Consensus Effect”, Fédération des Banques Françaises Seminar, TSE, June 12, 2017, 12:30–14:00, room MF 323.

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, which is shared by many popular non-expected utility models. 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.

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