Group-Shift and the Consensus Effect
40 Pages Posted: 2 Mar 2016 Last revised: 15 Mar 2016
Date Written: March 1, 2016
[It is well documented that individuals make different choices in the context of group decisions, such as elections, from choices made in isolation. In particular, individuals tend to conform to the decisions of others -- a property we call the consensus effect -- which in turn implies phenomena such as group polarization and the bandwagon effect. We show that the consensus effect is equivalent to a well-known violation of expected utility, namely strict quasi-convexity of preferences. Our results qualify and extend those of Eliaz, Ray and Razin (2006), who focus on choice-shifts in group when one option is safe (i.e., a degenerate lottery). In contrast to the equilibrium outcome when individuals are expected utility maximizers, the consensus effect implies that group decisions may fail to properly aggregate preferences in strategic contexts and strictly Pareto-dominated equilibria may arise. Moreover, these problems become more severe as the size of the group grows.
Keywords: Aggregation of Preferences, Choice Shifts in Groups, Consensus Effect, Non-expected Utility
JEL Classification: D71, D81
Suggested Citation: Suggested Citation