Are Groups Better Planners than Individuals? An Experimental Analysis

Abstract

Over the last ten years the literature in experimental economics has seen a growing interest in groups and how they compare to individuals in different settings. This paper contributes to the literature on this topic by investigating the comparison between groups and individuals with respect to intertemporal consumption problems. Empirical evidence has shown how dynamic optimization problems, representing intertemporal consumption decisions, involve computational difficulties that agents are not always equipped to solve optimally. Several econometric estimations on household and aggregate data seem to show that people do not save enough. Similarly, in many experiments, results suggest that people are very different in how they solve this class of problems and in how they react to changes in the decision environment. We present an experiment comparing group and individual planning under risk and uncertainty. Our study is focussed on investigating how groups perform in intertemporal decision making tasks, in particular observing the significance of group planning compared to individuals when choosing under risk and uncertainty. Results suggest that groups perform better than individuals when planning under risk, while the opposite happens in the case of planning under uncertainty. Interestingly, when comparing the behaviour of our agents in the second lifecycle (denominated ''sequence'') groups seem to lose all their advantage on individuals (in terms of less deviation from optimum). We interpret this as a ''stability effect'' caused by the random matching rule adopted during the groups sessions.

Keywords: Collective Decision Making, Intertemporal Consumer Choice, Life Cycle, Risk, Uncertainty, Laboratory Experiments

JEL Classification: D12, D91, D81, C91, C92