Our experimental results show that simply observing what others in the group are doing has a significant impact on behavior. Both RTI alone and the group decision rule—deciding how much to invest, either based on the median value (as in majority rule) or the minimum value (as in unanimity rule)—can influence individual choices. Nevertheless, there is both an influence of others' preferences as well as the group decision rule.
There are significant framing effects on investment choices based on the group's decision regarding the choices of group members. Whether the group decision rule affects investment decisions provides an additional perspective on whether there is an effect of influences other than those dictated by rationality.
Experimental Design
The treatments differ based on the order of the parts and the group environment in Part IV. Instructions for a next phase of the experiment were not given to subjects until they had completed all of their choices in the current stage of the experiment. A product safety expert investigated the accident and concluded that the company was negligent in manufacturing the product.
Expected result values are shown in parentheses in the right column for each entry. Part IV, which is carried out in phase 3 or phase 4 of the experiment, is the "group".
Hypotheses
Alternatively, it could be viewed as the threshold amount required for an individual to not agree to a class action investment. The experimental instructions specify that in majority rule, the fourth highest payoff will determine the decision affecting all members in the group, whereas in consensus rule, the lowest or sixth highest investment amount in a group of six will be determined by the group's total investment. If the i values are used to indicate the order in the group decision context, the investment value is x4m for majority and x6u for consensus.
For the range of choices chosen by respondents, increasing investment in the group context raises the expected value of the lottery, examining the direction of the shift and whether the level of investment is beyond the point where the expected payoff is at its maximum value. Unless the framing effect of the decision rule changes this ranking in an unexpected way, the fourth highest investment amount by majority rule will exceed the lowest investment amount by consensus. There is no unequivocal theoretical prediction for the ratio of average investment in the observed environment x and xir 40 and x60, as this will depend on how the framing effect of the group decision rule changes the posterior distribution of responses.
We expect that the majority rule and the unanimity rule will affect the group decision differently. For unanimous choice with RTI, there may also be a risky shift, but the low values may rise relative to the higher values, and there may be downward movement from the higher values due to the role of social norms and the asymmetry of the decision rule . . More people increase their xi values or decrease them, and on balance the magnitude of the increases is greater.
Thus, there should be no reversal of the effect of the RTI group information if there is actual learning and information acquisition associated with the RTI. There should not be a reversal of the effects of RTI in the reverse order experiment if RTI has a lasting effect on the perception and valuation of lotteries. Our fifth hypothesis examines the relationship between the person-specific measures of the constant relative risk aversion (CRRA) obtained using the Holt-Laury procedure and the group investment decision.
Summary of Individual and Group Investment Decisions
The amount each person actually invested in the group environment is shown on the right side of Table 3 in column (4). Comparing the investments subjects make within and outside a group, it is clear that the Observe treatment in the bottom two panels of Table 3 has the greatest impact on individual behavior. Individuals in the Original-Observe and Reversed-Observe treatments alone make an average investment of $2.01, but when they observe the decisions of others in the group, their investment increases to $2.62.
In the Original Majority and Reverse Majority treatments, individuals alone would invest $2.40, but with group input their average individual values increase to $2.45. In the original-unanimous and reverse-unanimous treatments, individuals would invest $2.20 alone, and with input from the group. The average individual investments in the Original-Observe and Reversed-Observe individual choice treatments are significantly different from the individual investments in the group setting at a critical level of 10% or less.
In contrast, average individual investments in the Original-Majority and Reversed-Majority treatments are not significantly different from the amounts actually paid in the group setting. Also, the average individual investments and the investments voted by the group in the Original-Unanimous and Reversed-Unanimous treatments are not significantly different. Majority rule will not produce an investment decision that differs significantly from what the average individual in the group would recommend.
While a majority government represents the average individual in a group, a consensus government is significantly more conservative in terms of the amounts spent. The Original-Observation treatments in the experiment yield significantly higher investment amounts than the investment amount. In the original observation treatment, participants pay 45% more to pursue a case in an informed setting compared to a confidential setting.
Analyses of Individual Choices in the Group Decision Contexts
The regression results in Table 4 analyze the determinants of the person's individual investment amount in the group decision context of Part IV for the original order. The first model includes the value of the individual investment in the individual decision from Part III, as well as indicators for the individual choice of the original majority and the original observation. Investments in the group context are higher for the Original-Observe treatments than for the omitted unanimous choice category, consistent with the risky shift predicted by Hypothesis 1.
15 Some of the effect of risk aversion can already be captured in the individual expenditure variable. The absence of a statistically significant effect of the Reversed-Observe variable in the single investment round indicates that the original order effect of Original-Observe is not reversed when people receive the group information in the initial round. This result is also reflected in the positive effect of the level of individual investment in the previous group situation on subsequent individual choices.
While individual investments did not affect group investments in Table 4, investment after observing others in the group affects individual investments. 16 Including the criterion of whether a person has won a previous group lottery involves an outcome that, unlike the usual case of an order, depends on the decision of the group and not necessarily on the decision of the individual. The effect of the variable on the direction of change in the level of investment in the group context is positive for both majority rule and the simple observation treatment, where these effects are relative to the consensus treatment.
The ordered probit regressions in Table 8 address these within-group effects on the composition of the determinants of whether people increase, do not change, or decrease their individual investment in the group context. Here, we create dummy variables for whether the person's individual investment in the individual choice case in Part III is in the top two investments or the bottom two investments in their group of six. The omitted dummy variable category consists of the individuals ranked third and fourth in the level of their individual investments.
Conclusion
However, the extent of the upward movement is much smaller than for "Most Original" or "Observe Original", which are significantly larger than the effect of the original return at the 1% level. Information alone without the unanimity group decision rule creates more upward movement by low-level investors than in the context of the unanimity group decision, so the presence of the unanimity low bid framing effect has an effect marginal that lowers rather than raises the bottom. offer. However, even apart from such influences, there are quite substantial differences in individual choice behavior in terms of the information that influences decisions, how people use available information in group contexts to make decisions when preferences are noisy, and how the group decision rule frames the decisions. in a way that changes subsequent behavior.
Subjects received all the information shown except for the numbers in the last column. The options are different among the ten choices because the probabilities of the choices change. The expected value of option A in the first decision is $1.64, and the expected value of option B is $0.475.
After all subjects have chosen either Option A or Option B in each of the ten scenarios, the computer randomly selects one of the ten scenarios for investment and determines for each subject whether they win or lose their chosen lottery. Based on their answers to Part I of the experiment and assuming a utility function of the form v(x). Overall, 83% of respondents are consistent, switching from option A to option B only once; of them, 17% of respondents show risk-averse preferences, 28% are risk-neutral and 55% are risk-averse.20 Only 3% of the sample with consistent choices fall into the extremely risk-averse group (r< -0.95) or the extremely risk-averse group ( 1.37 No one in the sample failed the rationality test on the final choice in Table A.1, and 17% of the sample changed their decision more than once in Table A.1. To introduce participants to the type of lottery structure used in the main part of the experiment, Part II presents subjects with lottery choice scenarios with a more complex expected payoff pattern; the expected payouts rise and then fall. After all subjects have made their choices, the computer again randomly chooses one of the nine suitcases to pay for. The expected value of Option B is shown in parentheses; these values were not given to the subjects in the experiment. In Part II of the experiment, subjects who do not show a measure of extreme risk aversion are asked to enter and then exit the lottery to maximize expected utility.
