Abstract

http://ssrn.com/abstract=2180938
 
 

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Garbage in, Garbage Out? Some Micro Sources of Macro Errors


Cass R. Sunstein


Harvard Law School

Reid Hastie


University of Chicago - Booth School of Business

November 24, 2012

Journal of Institutional Economics, Forthcoming

Abstract:     
Many institutions, large or small, make their decisions through some process of deliberation. Nonetheless, deliberating institutions often fail, in the sense that they make judgments that are false or that fail to take advantage of the information that their members have. Micro mistakes can lead to macro blunders or even catastrophes. There are four such failures; all of them have implication for large-scale institutions as well as small ones. (1) Sometimes the predeliberation errors of an institution’s members are amplified, not merely propagated, as a result of deliberation. (2) Institutions fall victim to cascade effects, as the initial speakers or actors are followed by their successors, who do not disclose what they know. Nondisclosure, on the part of those successors, may be a product of either informational or reputational cascades. (3) As a result of group polarization, deliberating institutions sometimes end up in a more extreme position in line with their predeliberation tendencies. Sometimes group polarization leads in desirable directions, but there is no assurance to this effect. (4) In deliberating institutions, shared information often dominates or crowds out unshared information, ensuring that institutions do not learn what their members know. Informational signals and reputational pressure help to explain all four errors. The results can be harmful to numerous institutions, including large ones, and to societies as a whole. Markets are able to correct some of these problems, but cascade effects occur there as well.

Number of Pages in PDF File: 24

Keywords: deliberation, informational cascades, group polarization, hidden profiles

JEL Classification: C92, D03, D70, D78

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Date posted: November 28, 2012 ; Last revised: November 18, 2013

Suggested Citation

Sunstein, Cass R. and Hastie, Reid, Garbage in, Garbage Out? Some Micro Sources of Macro Errors (November 24, 2012). Journal of Institutional Economics, Forthcoming. Available at SSRN: http://ssrn.com/abstract=2180938

Contact Information

Cass R. Sunstein (Contact Author)
Harvard Law School ( email )
1575 Massachusetts Ave
Areeda Hall 225
Cambridge, MA 02138
United States
617-496-2291 (Phone)
Reid Hastie
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
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