Group-Shift and the Consensus Effect
40 Pages Posted: 8 Oct 2016
Date Written: September 30, 2016
Individuals often tend to conform to the choices of others in group decisions, compared to choices made in isolation, giving rise to phenomena such as group polarization and the bandwagon effect. We show that this behavior, which we term the consensus effect, is equivalent to a well-known violation of expected utility, namely strict quasi-convexity of preferences. In contrast to the equilibrium outcome when individuals are expected utility maximizers, quasi-convexity of preferences imply that group decisions may fail to properly aggregate preferences 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, Quasi-Convex Preferences
JEL Classification: D71, D81
Suggested Citation: Suggested Citation