Democracy Under Uncertainty: The ‘Wisdom of Crowds’ and the Free-Rider Problem in Group Decision Making

Psychological Review, Forthcoming

94 Pages Posted: 16 Sep 2010  

Tatsuya Kameda

Hokkaido University - Behavioral Science; Stanford University - Center for Advanced Study in the Behavioral Sciences

Reid Hastie

University of Chicago - Booth School of Business

Takafumi Tsukasaki

Hokkaido University - Behavioral Science

Nathan Berg

University of Otago, Department of Economics

Date Written: January 1, 2010

Abstract

We introduce a game theory model of individual decisions to cooperate by contributing personal resources to group decisions versus by free-riding on the contributions of other members. In contrast to most public-goods games that assume group returns are linear in individual contributions, the present model assumes decreasing marginal group production as a function of aggregate individual contributions. This diminishing marginal returns assumption is more realistic and generates starkly different predictions compared to the linear model. One important implication is that, under most conditions, there exist equilibria where some, but not all members of a group contribute, even with completely self-interested motives. An agent-based simulation confirms the individual and group advantages of the equilibria in which behavioral asymmetry emerges from a game structure that is a priori perfectly symmetric for all agents (all agents have the same payoff function and action space, but take different actions in equilibria). And a behavioral experiment demonstrates that cooperators and free-riders coexist in a stable manner in groups performing with the non-linear production function. A collateral result demonstrates that, compared to a – dictatorial decision scheme guided by the best member in a group, the majority-plurality decision rules can pool information effectively and produce greater individual net welfare at equilibrium, even if free-riding is not sanctioned. This is an original proof that cooperation in ad hoc decision-making groups can be understood in terms of self-interested motivations and that, despite the free-rider problem, majority-plurality decision rules can function robustly as simple, efficient social Democracy Under Uncertainty.

Keywords: group decision making under uncertainty, free-rider problem, majority-plurality rules, marginally-diminishing group returns, evolutionary games, behavioral experiment

JEL Classification: D03

Suggested Citation

Kameda, Tatsuya and Hastie, Reid and Tsukasaki, Takafumi and Berg, Nathan, Democracy Under Uncertainty: The ‘Wisdom of Crowds’ and the Free-Rider Problem in Group Decision Making (January 1, 2010). Psychological Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1677169 or http://dx.doi.org/10.2139/ssrn.1677169

Tatsuya Kameda

Hokkaido University - Behavioral Science ( email )

Sapporo, Hokkaido 0
Japan

Stanford University - Center for Advanced Study in the Behavioral Sciences

75 Alta Rd
Stanford, CA 94305
United States

Reid Hastie

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

Takafumi Tsukasaki

Hokkaido University - Behavioral Science

Sapporo, Hokkaido 0
Japan

Nathan Berg (Contact Author)

University of Otago, Department of Economics ( email )

P.O. Box 56
Dunedin, Otago 9016
New Zealand

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